Recently, we discussed the U.S. Department of Labor’s (“DOLs”) rescission of the 80/20 rule.  Unfortunately, less than two months after the DOL’s rescission, the U.S. District Court for the Western District of Missouri rejected the DOL’s new guidance, claiming it is “unpersuasive and unworthy” of deference. As a reminder, the 80/20 rule requires businesses to pay tipped workers at least minimum wage (with no tip credit) for non-tip generating tasks when these tasks take up more than 20% of the tipped workers’ time. In Cope, et al. v. Let’s Eat Out, Inc., et al., Case No. 6:16-cv-03050, the court rejected the defendants’ motions to decertify the class of workers who claimed defendants violated the 80/20 rule. Defendants relied on the DOL’s recent rescission of the 80/20 rule.  The court denied the defendants’ motion to decertify, stating: The abrupt issuance of an opinion letter purporting to change the DOL’s interpretation after years of consistently construing the [underlying regulation] as limited by the [80/20] rule does not persuade this court to apply a new interpretation to the litigation ….  The DOL does not offer reasoning or evidence of any thorough consideration for reversing course. The court further stated that the DOL’s rescission does not stand up to either the Auer v. Robbins or Skidmore v. Swift & Co. deference standards set by the U.S. Supreme Court.  Specifically, the court explained that the rescission of the 80/20 rule was an “unfair surprise” to workers, as well as an unjustified departure from the DOL’s prior guidance.  The court further reasoned that the 80/20 rule is “a reasonable interpretation of the dual jobs regulation” – notwithstanding the DOL’s issuance of the November 2018 opinion letter or the update to the DOL’s investigation handbook. This decision represents a step back for restaurant industry.While this is only one case, it is expected that Cope will be used by future plaintiffs bringing 80/20 rule violation claims on behalf of themselves and putative classes in the near future.Only time will tell whether other district courts across the country will follow the Western District of Missouri’s footsteps, or whether we will have a split in the circuits.Stay tuned to Polsinelli at Work for further updates.

On December 28, 2018, the U.S. D.C. Circuit Court of Appeals upheld the National Labor Relations Board’s (“NLRB” or “Board”) joint-employer test as articulated in Browning-Ferris Industries, 362 NLRB No. 186.  Interestingly, the Court further held that the Board had failed to properly articulate what constitutes “indirect control” for purposes of the joint-employer test, and remanded that issue to the Board for further consideration. The Court framed the matter before it as “whether the common-law analysis of joint-employer status can factor in both (i) an employer’s authorized but unexercised forms of control, and (ii) an employer’s indirect control over employees’ terms and conditions of employment,” and determined that it can.  The Court explained that the Board’s joint-employer test as articulated in Browning-Ferris Industries finds extensive support in the common law of agency.  Specifically, “retained but unexercised control has long been a relevant factor in assessing the common-law master-servant relationship.”  In other words, the Board properly held that it was appropriate to consider both unexercised and indirect control when deciding whether a given entity is a joint-employer of another entity’s employees. However, the Court further held that the Board “failed to differentiate between those aspects of indirect control relevant to status as an employer, and those quotidian aspects of common-law third-party contract relationships.”  Stated plainly, the Board failed to explain what constitutes “indirect control” for purposes of the joint-employer test.  As a result, the Court remanded that issue to the Board for further consideration. For employers that make use of contingent labor forces, the D.C. Circuit’s decision is just another episode in the long-running joint-employer saga.  Readers will recall that the Board is currently taking comments regarding its proposed joint-employer rule until January 14, 2019.  Stay tuned to Polsinelli at Work for further updates.

On December 10, 2018, National Labor Relations Board (“NLRB” or “Board”) General Counsel Peter Robb released a comment to NLRB Board Members regarding the proposed Joint Employer Rule (“Rule”).  Not surprisingly, Mr. Robb concurs with the NLRB’s attempt to overturn its Browning-Ferris Industries, 362 NLRB No. 186 ruling via the rulemaking process. The reader will recall that Browning-Ferris Industries changed decades of precedent regarding the joint-employer standard and held that an employer could be considered a joint-employer where it maintained “indirect control” over another employer’s employees’ essential terms and conditions of employment. Yet to the surprise of labor-watchers, Mr. Robb argues the Board’s Rule does not go far enough. Mr. Robb argues that while the Rule “is an important step in the right direction,” employers would benefit from more “clarity” and guidance regarding its application. Indeed, Mr. Robb contends that the Rule leaves employers guessing as to which employment terms are “essential” when considering whether a putative joint-employer maintains “direct and immediate control” over a group of employees’ “essential terms and conditions of employment.” To provide employers with needed guidance, Mr. Robb suggests the Rule should list which “terms and conditions of employment” will be deemed “essential” for purposes of the joint-employer analysis. Mr. Robb argues such factors should include control over 1) the determination of wages and benefits; 2) hiring and firing of employees; and 3) discipline, supervision, and direction of employees. Moreover, Mr. Robb argues that the Board’s Rule should make clear that, for an entity to be a joint employer, “that entity must control all listed essential terms and conditions of employment.”  Per Mr. Robb, such a standard is necessary “[g]iven the grave concerns about subjecting an arms-length business partner to a bargaining obligation with another employer’s employees.”  Mr. Robb further emphasizes that a joint-employer finding should be “rare.” To be sure, Mr. Robb’s comment will not be the final say on the Rule. However, employers should consider the comment to portend good news. With the Board and the General Counsel on the same page regarding the need to revisit and tighten the joint-employer standard, employers that make use of another entity’s employees may soon face less legal risk regarding whether they will be deemed a joint-employer. Stay tuned to Polsinelli at Work for further updates.

For the second year in row, the federal government could be headed towards a partial shutdown.  The shutdown would be smaller in scale than those in recent years because appropriation bills have been passed to fund numerous departments and agencies through September 2019. On December 21, 2018, funding expires for the Department of Homeland Security, the Justice Department, the State Department, the Interior Department, and the Department of Agriculture, among others.  Thus, government contractors may once again face difficult questions regarding how to comply with applicable employment-related laws while their work for and with the federal government is paused. The below discussion is designed to assist contractors in navigating common issues that arise during a shutdown, but is not inclusive of all potential legal issues. Exemption Status Under the Fair Labor Standards Act During a shutdown, government contractors must be careful to remain in compliance with applicable federal and state wage and hour laws.  Unlike non-essential government employees who are typically furloughed during a shutdown, a contractor must decide whether to pay employees while their contracts and work are put on hold.  When making this decision, contractors must be aware that failing to pay employees can affect an employee’s exempt status under the federal Fair Labor Standards Act (“FLSA”). In general, an employee who is exempt from overtime under the FLSA must be paid on a salary basis of at least $455 each work week, regardless of the number of hours or days worked.  If an employer only pays exempt employees for the days or hours they work during the furlough, the employee may be deemed non-exempt.  This scenario presents a host of problems that most contractors would prefer to avoid. Accordingly, contractors must be vigilant in instructing and preventing employees from performing any work while on furlough.  A non-exempt employee should be paid for each work week they perform any work.  Even simple tasks such as reading and responding to emails would be considered work, thereby entitling the employee to pay for the entire week.  Some contractors may want to consider confiscating company laptops and other devices to avoid this issue. One solution to this problem that government contractors have used during past shutdowns is to require employees to use paid time off or vacation leave for days during partial furlough weeks.  Although this approach complies with the FLSA, it may also present unforeseen conflicts with contractual obligations and state and local law, which must also be reviewed. Another alternative that contractors have considered is requiring exempt employees to work a reduced workweek.  The DOL has approved of reduced work-hours programs for employers during periods of economic hardship.  In opinion letters, it has stated “a fixed reduction in salary effective during a period when a company operates a shortened workweek due to economic conditions would be a bona fide reduction not designed to circumvent the salary basis payment. Therefore the exemption would remain in effect as long as the employee receives the minimum salary required by the regulations and meets all the other requirements for the exemption.”  Opinion Letter FLSA2009-18.  Implementing a reduced work-hours program can present a host of issues, and experienced employment counsel should be consulted to avoid any costly mistakes. Pay Rate Issues for Foreign Workers During a shutdown, contractors need to be mindful of their obligation to pay foreign workers on visas. When employers sponsor foreign workers under H-1B, H-2B and E-3 visas, they are required to pay the rate set forth in the labor condition applications certified by the Department of Labor (“DOL”).  Even foreign workers placed on a non-productive status or reduced work schedules must be paid at the certified pay rate. Issuing WARN Act Notices to Furloughed Employees The federal Worker Adjustment and Retraining Notification (“WARN”) Act notice requirements may be triggered if a contractor furloughs a large number of its employees.  The WARN Act requires that employers provide 60 days’ notice to employees affected by a “plant closing” or “mass layoff.”  However, this requirement only applies if there is a qualifying “employment loss,” which is satisfied by one of the following:  (1) an employment termination, other than a discharge for cause, voluntary resignation, or retirement; (2) a layoff exceeding six months; or (3) a reduction in work hours of more than 50 percent during each month of any six-month period.  Thus, a mass furloughing of employees only triggers the WARN Act if it exceeds six months.  Like previous shutdowns, it is not anticipated that the looming government shutdown will exceed six months.  Nevertheless if the shutdown does extend for four months, contractors must consider issuing WARN Act notices.  In addition, contractors must also review analogous state laws that may be triggered. Compliance with E-Verify Requirements When a government contractor hires a new employee, it is required to confirm the employment eligibility of the employee using the government’s E-Verify system.  During prior shutdowns, the E-Verify system went offline for the duration of the shutdown.  That will likely be true in this case as well unless the Department of Homeland Security announces otherwise.  While E-Verify is unavailable, employers will not be able to access their E-Verify accounts and will be unable to enroll in E-Verify, create E-Verify cases, and run reports. Although the program may be unavailable, government contractors should continue to complete and maintain records of its I-9 paperwork.  The “three-day rule,” which requires employers to create a case in the E-Verify system within three business days after an employee begins working, will likely be suspended for cases affected by the shutdown.  Employers should submit the I-9’s as soon as the system comes back online. Likewise, the deadline for responding to “Tentative Non-Confirmation” notices will likely be extended for the duration of the shutdown.  If an employee has received such determination, the employer should not take any adverse action during the shutdown period due to the notice. Benefits for Furloughed Employees In the unlikely event that the government shuts down for an extended period of time, employee benefits may also be affected.  For example, some employees may lose coverage under the terms of the employer’s COBRA covered plan if their hours are reduced below certain thresholds.  In such a scenario, the employer would be required to send qualifying event notices and offer continuation coverage to impacted employees and their dependents. In addition, in some states, furloughing employees may make them eligible for unemployment benefits.  Contractors should review state and local law to determine potential eligibility. Conclusion A government shutdown would present government contractors with a slew of challenging compliance and legal issues.  It is critical for contractors to review the options available to them and consider, in consultation with counsel, the legal challenges and HR considerations raised by each. 

Acting OFCCP Director Craig Leen announced at the National Industry Liaison Group annual conference in early August that OFCCP would start conducting focused reviews of federal government contractors. A week later, on August 10, 2018, OFCCP issued Directive 2018-04 (the "Directive"), directing that a portion of OFCCP’s scheduling lists include reviewed focused on compliance with the three laws enforced by OFCCP: Executive Order 11246 (equal employment opportunity regardless of race, color, religion, sex, sexual orientation, gender identity, or national origin); Section 503 of the Rehabilitation Act (equal employment for individuals with disabilities), and the Vietnam Era Veterans' Readjustment Assistance Act ("VEVRAA") (equal employment for protected veterans). Starting in Fiscal Year 2019, a portion of each year's compliance evaluation scheduling lists will include focused reviews. The Directive anticipates that for Section 503 focused reviews, compliance officers would: Review policies and practice related solely to Section 503 compliance; Interview managers responsible for equal employment opportunity and Section 503 compliance; Interview employees impacted by the contractor's Section 503 policies; and Evaluate hiring and compensation data, as well as documents addressing the handling of requests by employees for accommodation. The Directive anticipates a "similar" approach would be used for Executive Order 11246 and VEVRAA focused reviews. The Directive states that OFCCP staff will "develop a standard protocol for conducting the focused reviews" and make the protocols available prior to the issuance of the next scheduling list. In addition, OFCCP will conduct training for OFCCP staff and contractors "to provide guidance as to the focused reviews." The Directive serves as an important reminder to contractors regarding the need to comply (and document compliance) with all of the laws enforced by OFCCP. Recent compliance reviews of OFCCP generally have not focused on contractors’ compliance with VEVRAA or Section 503.Contractors should anticipate that, even if they are not selected for a focused review, OFCCP is likely to focus on compliance with these laws.It is critical that contractors undertake a self-audit process to ensure that they are in compliance, including the benchmarks and analytics recently adopted by OFCCP.

Last Friday, OFCCP issued its first three directives of the 2019 fiscal year. With its new Compliance Review Procedures Directive (2019-01), OFCCP rescinds the Obama administration’s Active Case Enforcement (ACE) Directive (2011-01). ACE brought with it a fundamental shift in OFCCP audits with more focus on deeper dive audits that tended to take longer and impose significant burden and cost on contractors. Among other things, the ACE Directive required OFCCP to increase the frequency of random, mandatory onsite audits. OFCCP’s new Compliance Review Procedures Directive seeks to improve the efficiency of audits and increase the number of audits.  To further efficiency, the Directive requires early proactive corrections to resolve non-material violations. The Directive also clarifies that during an audit OFCCP may limit onsite reviews to the nature and scope of the indicators or concerns identified in the initial desk audit phase. Consistent with other recent directives issued by OFCCP, this new Directive emphasizes transparency. The Directive requires OFCCP to publish its scheduling methodology, much like it did earlier in the year with CSAL letters. The Directive also exempts contractor establishments from audit for 24 months from the date of closure of a neutrally scheduled audit for that establishment, unless OFCCP and the contractor have agreed to a different exemption period.

On November 30, 2018, the OFCCP made true on OFCCP Acting Director Leen’s comments in October that OFCCP was planning to implement an opinion letter program, issuing the Opinion Letters and Desk Help Directive (2019-03). This Directive is also consistent with the OFCCP’s earlier Transparency Directive covered here. Under this Directive, the OFCCP will implement both a help desk to answer contractor questions and an opinion letter program similar to that in place with the Department of Labor’s Wage and Hour division.  The Directive places some restrictions on the opinion letters: Opinion letters do not establish any legally enforceable rights or obligations Opinion letters should not be used to provide legal advice or to resolve questions that are the subject of ongoing or expected litigation OFCCP should not provide opinion letters to a contractor during the pendency of a compliance evaluation of that contractor’s establishment While the opinion letters do not establish legally enforceable rights or obligations, OFCCP will consider whether a contractor complied in good faith with the guidance provided in opinion letters in determining whether to proceed with an enforcement recommendation in a given matter.

The Early Resolution Procedures (ERP) Directive (2019-02) appears to be designed to address a long-standing frustration of OFCCP regarding the structure of the compliance audit process:  that it is generally limited to a single establishment or functional unit. Through its compliance audits, OFCCP reviewed a single establishment or functional unit of a contractor, focusing on its technical compliance, progress towards goals, and hiring, promotion, termination and compensation data.  When OFCCP identified a technical violation or a discriminatory practice, it did not have a mechanism for addressing similar violations at other establishments or functional units of the contractor. The ERP Directive offers OFCCP and contractors a mechanism for undertaking a mini-audit focused on specific technical violations or findings of discrimination uncovered during the desk audit phase.  After the desk audit (for technical violations) or a truncated on-site (for potential findings of discrimination), OFCCP would propose an Early Resolution Conciliation Agreement (ERCA) that resolved the violation at both the establishment under audit and at other establishments of the contractor covered by the ERCA.  The OFCCP would not issue a Notice of Violation (NOV) if OFCCP and the contractor entered into an ERCA. With an ERCA, OFCCP would agree not to subject the contractor for audit for five years at either (1) the original establishment if the ERCA involved technical violations or (2) all establishments covered in the ERCA if the ERCA resolved discrimination allegations.  However, during this period, the contractor would be required to provide periodic reports to OFCCP consistent with the terms of the ERCA.  Also, OFCCP would have the right to investigate individual claims of discrimination and suspected violations of the ERCA.  OFCCP would reserve the right to initiate an enforcement action and void the ERCA if a contractor violated it.  The five-year moratorium on audits also would not relieve the contractor of its ongoing obligation to comply with OFCCP affirmative action and non-discrimination obligations. The Directive offers advantages for the contractor beyond the potential 5-year moratorium on audits.  Contractors should take advantage of the ERP Directive to try to resolve potential violations early in the audit process.  In addition to conserving resources, the contactor avoids the disruption of on-site inspections, employee interviews and responding to extensive document and data requests. Contractors will likely find that their interest and ability to resolve OFCCP’s concerns through the ERP will depend on the nature of the violation claimed and the number of establishments impacted by it. If OFCCP identifies a technical violation, like the failure properly to collect applicant flow data, a contractor should have an interest in resolving the issue quickly through an ERCA and addressing the compliance problem at all of its establishments. Allegations that a contractor has engaged in discriminatory practices present a more challenging situation.  In many situations, OFCCP’s findings will stem from a fundamental dispute between the contractor and OFCCP regarding the methodology used by OFCCP.  For instance, for compensation discrimination, the contractor may object to the factors or analytical tools used by OFCCP in its multiple regression analyses. It would be a tough pill for a contractor to swallow to require it to make compensation adjustments or changes in its policies at all or a portion of its establishments in that situation.  However, if the alleged violation involves a policy or practice that the contractor is willing to abandon (or perhaps already has), such as a pre-employment test, resolving the audit and entering into a five-year ERCA may be a desirable option. The ERP Directive is applicable to all current OFCCP compliance audits in which a Pre-Determination Notice (PDN), Notice of Violation (NOV) or Show Cause Notice (SCN) has not been issued as of November 30, 2018.

A second wave of the Corporate Scheduling Announcement Letters (CSALs) were released to 750 more contractors.  As we previously reported, 1,000 CSALs were mailed in February, with scheduling letters that followed on March 19, 2018. CSALs do not initiate an audit – only a scheduling letter can do that. However, a CSAL notifies a contractor that their establishment is on the scheduling letter list giving the contractor extra time to get their Affirmative Action Program (AAP) ready for submission. The CSAL gives recipients at least 45 days’ notice of a scheduling letter.  Once the OMB approved scheduling letter arrives, contractors only have 30 days to submit their AAP. The supplement CSALs that were recently issued went to 445 companies, 69 CMCEs, and 66 FAAP functional units. The OFCCP has published a list of the CSAL recipients in its FOIA library, which can be found here. The OFCCP explained that it elected to publish this list because it is a frequently requested document and does not fall into any exemption from disclosure. Like with its spring release, the OFCCP has also released its methodology for selecting contractors for this scheduling letter list. The CSALs were sent to the actual facility identified on the OFCCP’s scheduling list and were addressed to “Human Resources Director” or the company’s designated point of contact.  CSALs were not sent to companies who are subject to evaluation by the OFCCP because of a contract award notice or as a result of a consent decree or other ongoing monitoring by the OFCCP. The OFCCP indicated that actual scheduling letters may go out soon. The OFCCP also published a new FAQ that addresses the one-time 30-day extension a contractor may receive for supporting data related to the E.O. 11246, VEVRAA and Section 503 AAPs. A contractor is eligible, provided that it: Requests the extension before the initial 30-day due date for the AAPs; and Timely submits the basic E.O. 11246, Section 503 and VEVRAA AAPs within the initial 30-day period after receiving the Scheduling Letter and Itemized Listing. Contractors should heed the warning in the FAQ that a “[f]ailure to submit AAPs and/or supporting data timely, with approved extensions, will result in an immediate Notice to Show Cause why OFCCP should not initiate enforcement proceedings.” The OFCCP made clear that the additional CSALs were a supplement to the February 2018 scheduling list, which means we can expect a new scheduling list in “early 2019.” Polsinelli will continue to monitor developments and will provide updates as they become available. In the event your organization received a CSAL, we recommend you contact counsel immediately.

On October 18, 2018, OFCCP Acting Director Craig Leen gave a 2-hour presentation at the National Employment Law Institute’s Affirmative Action Update on “What’s on the OFCCP Director’s Desk”. Acting Director Leen rapidly went through four principles that the OFCCP under his leadership will follow: 1. Transparency The OFCCP has already issued several new directives in an effort to promote transparency in the OFCCP’s compliance audit process. The Transparency Directive (2018-08) is a prime example of this effort. Acting Director Leen pointed out that this Directive applies to pending audits to the extent possible and stated that he has told the entire agency to follow it. He went on to say that he wants to see a more collaborative approach between the OFCCP and the contractor at earlier stages of the audit with both sides treating each other with respect and engaging in good faith discussions to work out disputes. As a second example, Acting Director Leen covered the Ombud Service Directive (Directive 2018-09). The OFCCP is working to hire an Ombud as a GS 15 level employee either in the national office or in a teleworking role. This individual will report to the Deputy Director. The purpose of this new role is to give contractors a path to address any concerns at any point in the audit. For example, Acting Director Leen stated that a contractor may contact the Ombud to ask if events in an audit are typical and/or are consistent with OFCCP protocols. The Ombud may answer a question directly or may direct the contractor to the appropriate person within the agency. Until the Ombud is hired, contractors should follow chain of command in the agency to address concerns. Acting Director Leen also pointed to the publishing of the CSAL list Is a further example of transparency. He noted that this was a controversial step, but that he was told by the Solicitor’s Office that every time 3 FOIA requests are received on an item, the OFCCP is required to post it. As long as Acting Director Leen is at the helm, the agency plans to continue to post the CSAL list. The OFCCP plans to adopt more initiatives in this area, such as expanding the help desk, cleaning up and making OFCCP FAQs more usable and issuing opinion letters similar to the Wage and Hour Division. 2. Certainty The OFCCP wants to set expectations for contractors. Acting Director Leen thinks that if contractors will be held accountable, they should know the stakes. One effort in this area is the new Compensation Directive (Directive 2018-05). The OFCCP remains strongly committed to looking for systemic compensation discrimination. Acting Director Leen shared a few new developments in this area including that the OFCCP plans to look at the intersection between race and gender in compensation. For example, they plan to explore whether minority women have a greater pay gap than all women. He also shared plans to look at compensation for individuals with disabilities. Other examples of providing certainty to the contractor community include the Religious Exemption Directive (Directive 2018-03), the Tricare Moratorium Extension, and mandatory use of Predetermination Letters when the OFCCP is alleging discrimination. 3. Efficiency Acting Director Leen commented that it is abusive to hold contractors in audit for long periods of time. To change this, Leen cited as examples the 45-day desk audit in the Transparency Directive and the AAP Verification Initiative (Directive 2018-07). Under the Verification Initiative, it is Acting Director’s goal that contractors will no longer wait for receipt of a CSAL letter before seeking compliance guidance. The OFCCP is also working with the Government Services Administration (GSA) to gain access to the verifications that federal contractors currently make to GSA about their affirmative action plans when bidding for contracts and is exploring the possibility of auditing contractors that answer “no” on whether they have an affirmative action plan and potentially pursuing contractors who answer “yes”, but cannot timely submit an affirmative action plan in an audit. He also discussed a planned proposal that would require every contractor to be audited at least once every five years. 4. Recognition Acting Director Leen discussed the Contractor Recognition Program (Directive 2018-06) as an opportunity to recognize federal contractors who excel at compliance. He also mentioned the Excellence in Disability Inclusion Award, which is currently open for public comment and hinted that additional awards are in the works. Acting Director Leen explained that he has a personal interest in disability inclusion because he has a child with special needs. Contractors should expect some special focus on Section 503 compliance as evidence by the Focused Review Directive (2018-04). While Acting Director Leen has an ambitious “to do” list in front of him, he has already accomplished a lot during his three-month tenure as Acting Director, as evidenced by the steady stream of Directives issued during that period.

For traditional AAP programs, federal contractors and subcontractors are required to develop, implement and self-audit affirmative action programs for every establishment with 50 or more employees. Traditional AAPs contemplate that the employees in that establishment (and reporting into it from other locations) will be in a hierarchical structure centered on a single set of products or services (e.g., manufacturing, consulting services, retail operations).  Recognizing that contractors are not always organized based on establishments, the OFCCP adopted FAAP regulations 20 years ago that allow contractors to enter into agreements with OFCCP to organize its AAP programs based on the functions performed by employees, rather than the establishments where they physically work or are based. For contractors that are organized based on functions (e.g., lines of service, discrete types of operations), the FAAP program can offer a lot of benefits.  Contractors whose operations are organized based on function or lines of business have found that FAAPs allow them to organize and analyze data more easily, establish lines or responsibility for developing, implementing and auditing FAAPs, and more effectively monitor compliance and progress towards goals.  But even more importantly, the consultation and approval process allow contractors to develop a relationship with the FAAP program at the National Office of OFCCP.  They can provide significant help in structuring the contractor’s functional units, in developing compliance programs and during compliance audits. The challenges in the past however, have included delays in the approval process and a lack of harmony between the FAAP program and the process used to select FAAPs for audit and undertake compliance audits.  Contractors feel that they have to work with field officers, who primarily handle establishment based plans, to address the difference between FAAPs and establishment-based programs, including how data requests should be tailored, how regional differences impact compensation, and how “on-sites” should be conducted when the employees in the FAAP are often spread all over the country.  Mindful of the concerns of contractors and to generate additional interest in the program, OFCCP recently issued a proposed directive—which is open to public comment—revising its policies and procedures for approving FAAP agreements and undertaking compliance audits. History of the Program Because the regulation authorizing the FAAP program is vague, the OFCCP has relied on Directives to provide guidance to the OFCCP and contractors regarding the FAAP program.  In 2013, the OFCCP issued guidelines tightening up the approval process and addressing the frequency with which contractors with a FAAP program would be audited.  However, the approval process remained cumbersome and, at times, lengthy, and there was often a disconnect between the National Office and individual District and Regional Offices regarding how audits should be conducted, particularly when the FAAP included employees spread over a large region.  In FAAP audits in which we have been involved in the past several years, the National Office has had to step in and provide guidance to the field office regarding which portions of the company can be audited and the unique analyses that are involved in assessing FAAPs. Over the two years, the FAAP Office at OFCCP has worked to address these issues, providing training to contractors and field officers regarding the FAAP program and removing some of the impediments to efficient approval of FAAP programs.  Members of the FAAP Office have conducted webinars and spoken at national conventions to educate contractors regarding the benefits of the FAAP program and to obtain feedback regarding initiatives the Office is considering, including programs to improve its engagement with contractors and the FAAP approval and audit process.  I spoke at length with Nakish Pugh, the Branch Chief for the FAAP Program, at the National ILG Convention in early August about my experiences with the program over the past 15 years.  She was eager to obtain input regarding my experiences and my recommendations for improvement. The Proposed Directive Consistent with these recent initiatives, OFCCP recently proposed a new Directive for the FAAP Program.  The proposed reforms include a number of changes that will make the program more attractive to contractors that are organized by functions or lines of service.  The proposed revisions would decrease the burdens imposed by FAAP agreements and provide more consistent application of OFCCP’s approval process, audit selection process and audit procedures.  The proposed Directive explains that: OFCCP is encouraging the use of functional or business unit based affirmative action programs (AAPs). A functional AAP agreement can be an attractive alternative to having an establishment-based AAP for several reasons. OFCCP’s FAAP program allows a company that is a covered federal contractor or subcontractor to organize its AAP to reflect how the company operates functionally and not where its facilities and people are physically located.   A company with a FAAP may find that it is easier to organize and analyze data, identify issues, establish clear lines of responsibility for implementing its AAP, and monitor progress. There is also the benefit of having the flexibility to combine the use of FAAPs and establishment-based AAPs. The most significant proposed revisions would: Increase FAAP agreements effective period from three to five years; Eliminate the requirement that FAAP contractors undergo at least one compliance evaluation during the term of the agreement; Expand the exemption period for FAAP units that have undergone a compliance evaluation from 24 months to 36 months; Eliminate the consideration of a contractor's compliance history in deciding whether to approve a FAAP request; Remove the three-year waiting period for reapplying for a FAAP agreement following termination of an agreement; Eliminate the annual requirement for contractors to report on the status of their FAAP agreements; Remove language permitting OFCCP to terminate a FAAP agreement if the contractor has been found in violation of the laws and regulations enforced by OFCCP; and Allow OFCCP to administratively close any establishment-based compliance evaluation received during the 120-calendar-day FAAP implementation period. Input Concerning the Proposed Guidance The notice invites contractors, law firms and consultants to provide feedback concerning the proposed modifications to the Guidance.These public comments are due by November 13, 2018.Polsinelli is in the process of preparing comments concerning the proposed guidance so that its procedures are more streamlined, transparent and fair to contractors.If any contractor would like Polsinelli to incorporate its comments into its comment letter, please feel free to contact me at cbertram@polsinelli.com.

On August 24, 2018, OFCCP released its long-awaited Directive outlining the standard procedures OFCCP will use during the course of compensation audits of federal government contractors. Concerned that it failed to provide clear guidance to contractors, the Directive rescinds and updates Directive 307, OFCCP's most recent guidance concerning compensation audits. OFCCP explained that it "believes that fulsome guidance will further support contractors' ability to conduct meaningful self-audits so that they can proactively identify and address issues with their compensation practices." The Directive and its attachment and the FAQs are attached here. OFCCP explained that the purpose of the new Directive was to (1) provide further transparency to contractors regarding the procedures used by OFCCP in conducting compensation audits; (2) support compliance and self-analysis by contractors; and (3) improve compensation analysis consistency and efficiency during compliance evaluations. The Directive was intended to provide more transparency to contractors regarding OFCCP's procedures and practices for establishing pay analysis groups (PAGs) and conducting statistical analyses and modeling. OFCCP reiterated in the attachment to the Directive that it is focused on identifying and addressing compensation disparities that are the result of systemic discrimination, including pattern or practice discrimination and disparate impact discrimination. If OFCCP believes there are indicators of systemic discrimination, it will seek to understand the contractor's compensation system, policies and practices and undertake what it characterizes as a "holistic" review of the contractor's EEO, diversity and inclusion policies. The attachment explains that, in conducting such a holistic review, it will consider a variety of employment practices that can lead to compensation disparities between similarly-situated employees, including the promotion, training and advancement opportunities, and the assignments offered to employees. OFCCP also described the categories of evidence it will consider during compliance reviews, including statistical and anecdotal evidence. Anecdotal evidence can be derived from the review of policies, compensation records and other documents and interviews with managers and workers. OFCCP explained that, in determining which cases to pursue, OFCCP will be less likely to pursue a matter if the statistical evidence is not corroborated by non-statistical evidence, unless the statistical evidence is especially strong or OFCCP has identified a pattern of compensation discrimination by the contractor in prior audits. OFCCP will continue to use the OMB-approved scheduling letter to collect initial compensation data from contractors. Compliance officers will use the information provided by contractors to develop pay analysis groupings (PAGs) of comparable employees. According to the attachment to the Directive, it is OFCCP's objective to use or create PAGs that mirror the contractor's compensation system. It notes that, if a contractor provides information concerning its compensation hierarchy and job structure in the submission, OFCCP will attempt to design its analysis based on that structure. OFCCP expects the information provided by the contractor concerning its compensation structure to be reasonable and verifiable and will include groups of sufficient size to undertake a meaningful statistical analysis. OFCCP declined to identify in the Directive the size of groupings it considers sufficient. However, in the FAQs issued with the Directive, OFCCP states that it will first review each of the PAGs to determine if they contain at least 30 employees under a similar pay system performing similar job functions. It will then try to determine if there are at least 10 employees per variable (e.g., gender, years in position). Thus, if a pay model had five control variables, the PAG would ideally have at least 50 employees. It also noted in the FAQs that, in rare circumstances, OFCCP may rely on non-statistical, or cohort, data to assess small job groups. If a contractor declines to provide proposed groupings or the information necessary for OFCCP to establish PAGs, OFCCP will conduct its preliminary desk audit based on either EEO-1 or AAP job groups, if they are reasonable and sufficiently large. After it identifies appropriate PAGs, OFCCP will then control for factors that impact pay within the PAGs, such as sub-job groupings, functions, units and titles, as appropriate. During this preliminary analysis, OFCCP will also control for tenure, full-time status and other appropriate factors. If the results of the desk audit warrant additional review, OFCCP will seek additional information to understand the contractor's compensation systems, factors that drive compensation decisions, and job structure. Based on this additional information, OFCCP may broaden or narrow its preliminary PAGs. OFCCP identified principles that it will use to conduct statistical analyses, both during and after the desk audit phase: It will use multiple linear regression analysis (MRA) to help reduce false negative and positive results; It will analyze (1) base pay, (2) total compensation and, if necessary (3) individual components of pay (e.g., bonuses or commissions); It will convert salary to a log of salary using a regression model; and It will analyze statistical outliers to test whether the PAGs have been composed properly. In analyzing pay disparities using these models and principles, OFCCP will evaluate males and females in separate regression models. OFCCP noted, however, that it may evaluate the interaction of sex and race in future models. For race and ethnicity, OFCCP will create a variable for each race and ethnicity category with more than five employees. OFCCP provided the following guidance concerning the factors it will apply in undertaking a MRA: It will control for components of employee tenure (e.g., time in position, time with the company) separately; It will not consider squared terms (factors, such as time in position, that level out over time) until after the initial desk audit phase; It will control for education categories and performance ratings and rakings, combining them as necessary; It may use age as a proxy for prior experience only at the desk audit phase; Per the FAQs, it may control for job title if pay legitimately varies based on job title. It will control for job level or grade, combining them as necessary; and It will evaluate market salary surveys, if provided by the contractor, on a case-by-case basis if job and pay differentials are not sufficiently accounted for. Before OFCCP will apply any of these (or other relevant) factors, it will test them for neutrality to make certain they do not have a disparate impact on any protected category. OFCCP also adopted the "rule of five" recently used by the National Office statisticians in compliance reviews and conciliation negations. It described this rule in the FAQs in discussing the circumstances when job title would be a relevant factor: OFCCP will attempt to control for . . . job title if pay legitimately varies by job title. In many instances, controlling for factors like grade level, department, or business unit sufficiently distinguishes functional differences in job titles . . .. To capture meaningful pay differentials across the categories, OFCCP requires that each category contain at least five observations. If a category has fewer than five observations, OFCCP will join those observations with their ordinal counterpart (e.g., nearest grade or level) or to the category with the nearest average pay. With this approach, OFCCP meaningfully controls for pay differentials across job titles while minimizing the risk of suturing the model with low frequency employee controls. At the end of the attachment, OFCCP identifies three practices it will use to facilitate transparency and consistency and the resolution of findings through conciliation: At the conclusion of the desk audit, OFCCP will notify the contractor in writing of the general nature of any preliminary compensation disparities. For instance, a contractor may be informed that preliminary disparities have been found in "compensation policies and practices with respect to women in production, sales and management." Consistent with Directive 2018-01, OFCCP will attach to any pre-determination notice (PDN) the individual-level data necessary for the contractor to replicate OFCCP's PAGs and regression results. The contractor will have the opportunity to offer a non-discriminatory explanation for the preliminary findings before a violation will be found. The PDN and the contractor's response will be reviewed by the National Office. The individual-level data will also be attached to any Notice of Violation (NOV) issued to the contractor after the National Office's review is completed. To facilitate conciliation, OFCCP will include professional labor economists or statisticians from the Branch of Expert Services in the conciliation process to clarify OFCCP's variable coding, statistical methods and findings and to answer questions about the process and assumptions used in computing back pay. With respect to point 2, OFCCP explained in the FAQs that, if a contractor provides factors that may explain the disparities in pay, OFCCP's statisticians and other field and national office staff will coordinate with representatives from the DOL's Regional Office of the Solicitor to decide on a preliminary analytical model. The contractor will be given an opportunity to provide additional information to OFCCP regarding its compensation systems and practices. Based on the additional information provided by the contractor, the preliminary model may be refined. The Directive went into effect on August 24, 2018. It will apply to all compliance evaluations scheduled on or after that date. The Directive states that it will apply to "open reviews to the extent they do not conflict with OFCCP guidance or procedures existing prior to the effective date" of the Directive. After we have an opportunity to digest the detailed standards set forth in the Guidance and associated documents and obtain input from OFCCP officials, we will provide a series of blogs entitled "Demystifying OFCCP's New Compensation Guidance" that reviews – in plain text – the three key elements of the Guidance and provides practical advice for compliance with them.

In an effort to address the issues raised by the #MeToo movement, Congress and state and local lawmakers have introduced a series of laws aimed at eliminating sexual harassment and abuse in the workplace. By mid-2018, over 125 bills had been introduced to address the challenges raised by workplace harassment.  Many of these statutes and proposed laws have prohibited or limited the use of mandatory arbitration agreements for the resolution of sexual harassment and abuse claims. However, many years prior to the #MeToo movement, Congress enacted the ‘Franken Amendment,' which prohibits government departments and agencies from using Department of Defense appropriations for any contract in excess of $1 million unless the contractor agrees not to require its employees to sign arbitration agreements and to take any action to enforce arbitration of claims under Title VII of the Civil Rights Act of 1964 or tort claims related to or arising out of sexual assault or harassment.  Initially, it was thought that the Franken Amendment would (1) prohibit contractors from entering into employment agreements that would require arbitration of a covered claim, and (2) prohibit contractors from enforcing any such mandatory arbitration provisions in existing employment agreements. However, courts are increasingly ruling that, by its plain language, the Franken Amendment does not prohibit contractors from entering into or enforcing mandatory arbitration provisions, it only prohibits certain federal departments and agencies from contracting with such contractors.  Accordingly, the Franken Amendment is not a defense to arbitration.   Lee v. Google Inc., is the most recent case to reach this conclusion. Lee, a former Google employee, alleged disparate impact discrimination on behalf of a putative class of female Google employees who were required to arbitrate sexual harassment claims, in addition to several individual claims relating to and arising out of alleged sexual harassment. Lee had signed an arbitration agreement and Google moved to compel arbitration. Lee argued that the Franken Amendment prevented Google, as a defense contractor, from compelling arbitration of the former employee’s sexual harassment claims.  However, the court rejected Lee’s argument, holding that the Franken Amendment does not establish a defense to arbitration. The Lee court cited to Ashford v. PricewaterhouseCoopers, LLP, a 2018 case where the United States District Court for the District of South Carolina reasoned that “the Franken Amendment does not prohibit employers from mandating arbitration of Title VII claims. It, instead, prohibits certain government entities from entering certain types of contracts with entities that require employees to agree to arbitrate certain claims as a condition of employment (either by entering new contracts mandating arbitration of such claims or enforcing existing provisions).”  Following this reasoning, the Lee court ruled that the Franken Amendment “does not provide that arbitration provisions executed or enforced in violation of [the Franken Amendment] are void, nor does it establish a remedy for violations in favor of employees.”  Accordingly, the Lee court granted Google’s petition to compel arbitration. In response to the Franken Amendment, many defense contractors and subcontractors modified their arbitration agreements and contractors to carve out sexual harassment claims.Although such a modification may be necessary to secure a defense contract covered by the amendment, it appears that Courts at least have been unwilling to invalidate arbitration agreements of contractors that do not include such carve outs.Although other avenues for relief may be available to prospective claimants, it appears that the Franken amendment alone will not protect them from mandatory arbitration provisions.However, in response to the #MeToo movement, numerous states and localities have adopted or are considering laws that prohibit the mandatory arbitration of sexual harassment claims. It is critical that contractors monitor these developments to ensure that their arbitration agreements comply with these new laws.

On August 10, 2018, OFCCP Acting Director Craig Leen issued Directive 2018-03 in an effort to harmonize OFCCP’s standards with “recent developments in the law regarding religion-exercising organizations and individuals." Directive provides a summary of OFCCP's regulations, Executive Orders and court decisions addressing the standards that apply to religious organizations and claims of discrimination based on religious affiliation, noting the "duty to protect religious exercise – and not to impede it. At the end of the Directive, it instructs OFCCP staff "to take these legal developments into account in all their relevant activities, including when providing compliance assistance, processing complaints, and enforcing the requirements of E.O. 11246."  The Directive states that OFCCP anticipates future rulemaking on this topic. The new Directive may have been issued by OFCCP to address the concerns of religious organizations that contract with the federal government regarding the expansion of Executive Order 11246 to include sexual orientation and gender identity protections. However, given the absence of clear guidance in the Directive, it is unclear how this politically sensitive issue will be handled by OFCCP staff during compliance reviews.

On August 2, 2018, OFCCP issued a publication called "What Contractors Can Expect ." The document provides "the general expectations that often guide interactions between federal contractors and OFCCP." The publication was designed to address concerns of the contractor community concerning the lack of transparency and consistent standards and to improve OFCCP’s relationship with contractors and others regulated by OFCCP. Access to Accurate Compliance Materials.  OFCCP states that it is "committed to providing clear, concise, and practical compliance assistance" in the form of "technical assistance guides, factsheets and brochures, 'Frequently Asked Questions' or FAQs, guidance documents, directives, webinars, and email."  Since the issuance of the publication, OFCCP has issued a series of Directives designed to provide additional information concerning the procedures and standards that apply during compliance reviews and adopted an Ombud program to address contractor concerns. Timely Responses to Compliance Assistance Questions.  The publication states that "[c]ontractors can typically expect a reply to Help Desk inquiries and emailed compliance assistance questions within 3-4 business days." Where more time is needed, contractors "can expect that OFCCP will provide notice of the delay and assurance that OFCCP's reply, when provided, is responsive to the issues raised." Opportunities to Provide Meaningful Feedback and to Collaborate.  OFCCP states that contractors "can expect OFCCP to provide them with opportunities to submit feedback on the quality and quantity of the agency's compliance assistance offerings and, periodically, on their experiences during their most recent compliance evaluations."  OFCCP also indicates that it will engage with contractors "on the development of new compliance assistance material, contractor training, and other matters that may support contractor compliance."  Consistent with this expectation, Ms. Bertram was consulted during the conference by a member of OFCCP's National Office regarding Ms. Bertram's experiences working with the member's program and how the program's performance could be improved. OFCCP has also reached out to representatives of the contractor community to obtain their feedback. Professional Conduct by OFCCP's Compliance Staff.  In response to criticism about what many contractors perceive to be heavy-handed or unfair tactics, OFCCP states that contractors "can expect to receive prompt, courteous, and accurate information during compliance evaluations and complaint investigations."  However, OFCCP notes that professional courtesy works both ways, as "the perceived quality of an engagement with OFCCP staff can be influenced by several factors, including the specificity and accuracy of the information contractors provide, and the timeliness and thoroughness of their responses to document production requests during compliance evaluations and complaint investigations." Neutral Scheduling of Compliance Evaluations. OFCCP states that contractors "can expect OFCCP to use a neutral selection system to identify contractors for compliance evaluations." Addressing concerns raised at its recent town hall meetings, OFCCP emphasized that "individual contractors are never 'targeted' though OFCCP may focus its resources on particular industries or sectors, geographic regions, or types of employment practices," and that "OFCCP never schedules a contractor for a compliance evaluation because that contractor sought compliance assistance." Reasonable Opportunity to Discuss Compliance Evaluation Concerns. The publication also states that contractors "can expect to have a reasonable opportunity to discuss issues that may affect the progress or results of their compliance evaluation or complaint investigation." OFCCP encourages contractors to use the chain-of-command, starting with the local compliance officer and working its way, if necessary, up to the regional or even national level. OFCCP believes that such interactions "can remove uncertainty and clarify areas of misunderstanding." Timely and Efficient Progress of Compliance Evaluations.  Contractors have become increasingly concerned about the length of compliance reviews and the short time-frame provided by OFCCP for responding to information and data requests.  It had become common for OFCCP compliance officers to demand the production of documents within three business days.  The publication states that contractors should expect that they will be provided with "reasonable production timelines ... as determined in light of all relevant facts and circumstances."  OFCCP also commits to providing "clear explanations of OFCCP's compliance evaluation processes and periodic status or progress updates as evaluations progress."  The agency notes that its ability to conduct timely and efficient compliance evaluations is "greatly influenced by the level of cooperation OFCCP receives, and the quantity, quality, and timeliness of the information that contractors provide." Confidentiality. OFCCP states that contractors "can expect that the information they provide during a compliance evaluation will be kept confidential. OFCCP keeps this contractor information, including but not limited to personnel records and salary data, confidential to the maximum extent allowed by law."

On September 19, 2018, the OFCCP issued the most recent in a series of Directives designed to facilitate contractors’ efforts to self-audit and understand their compliance obligations and increase the transparency and accessibility of the enforcement efforts of OFFCP. Through Directive 2018-09, OFCCP adopted an Ombud Service in the National Office to facilitate the resolution concerns raised by external stakeholders, including federal contractors and subcontractors, industry groups, law firms, and complainants. The Directive explains that “transparency is the foundation of a relationship of respect, dialogue and feedback with its stakeholders that will help the agency improve its effectiveness in both compliance assistance and evaluations.”  OFCCP believes that increased transparency will improve operational efficiency and effectiveness and support contractors’ ability to conduct meaningful self-audits that proactively identify and address areas of concern. To respond to concerns raised in a September 2016 report by General Accounting Office (GAO), OFCCP is adopting an independent mechanism through which external stakeholders can share their concerns with OFCCP about a particular open matter or provide general feedback or recommendations. OFCCP will hire an OFCCP Ombud who will report directly to the Deputy Director.  The Ombud will be responsible for (1) listening to the concerns of external stakeholders; (2) promoting and facilitating the resolution of OFCCP matters at the regional and district level; and (3) working with OFCCP regional and district offices as a liaison to resolve issues after stakeholders have exhausted those channels. If the Ombud program operates consistent with the Directive, it should provide contractors with an additional resource when they are facing challenging situations during the course of an audit. For instance, if a district office is demanding extensive records (perhaps for the third or fourth time) from a contractor during a compliance audit without an explanation (or what the contractor considers to be a reasonable one), contractors could reach out to the Ombud for assistance and support.  The Directive emphasizes that the Ombud will not act as an advocate for either side or give advice or opinions. However, he or she may be able to help the contractor and the district or regional office reach a resolution of their dispute. In these situations, it would be advisable for the contractor to work the issue through the “chain of command,” presenting (and documenting) its positions in a constructive and professional manner at each step in the chain. Then, it should be able to reach out to the Ombud with a written record, showing its efforts to reach a resolution and clearly identifying its position and arguments on the dispute.  It would also be advisable to work with the Ombud on constructive, proactive issues, such as suggestions for improvement, so that he or she knows that the contractor supports OFCCP and its compliance efforts.  By developing a good working relationship with the Ombud will put contractors in a better position when they feel they are not getting a fair shake in the audit or conciliation process.

In addition to Directive 2018-09, summarized here, OFCCP issued on September 19, 2018 Directive 2018-08 addressing the OFCCP compliance review process. OFCCP explains that it is the most recent of a series of Directives designed to increase transparency and the quality of compliance reviews, including hosting a series of compliance assistance events, issuing a Directive requiring Pre-Determination Notifications prior to the issuance of Notices of Violation, and publishing OFCCP’s supply and service scheduling methodology.  OFCCP states in the Directive that it “extends OFCCP’s transparency initiative to every stage of a compliance evaluation to facilitate consistency of operations, improve efficiency and resolve collaboratively matters during compliance evaluations.” The Directive announces the following changes to OFCCP’s compliance audit process: Compliance officers will contact the contractor within fifteen days of sending CSALs so that they can provide technical assistance and support to contractors in responding to them. OFCCP will provide a 30-day extension to provide supporting data responsive to the CSAL if (1) the contractor requests the extension prior to the initial 30 day due-date; and (2) the contractor timely submits basic AAPs within the initial 30-day period.  If these conditions are not satisfied, OFCCP will only allow extensions in “exceptional circumstances.” The failure to submit timely AAPs or support data will result in the immediately issuance of a procedural Notice to Show Cause. The contract will have an additional 30 days to submit these materials after the issuance of the Notice. After a compliance officer receives the contractors AAPs and supporting data, he or she will contact the contractor to confirm receipt and start the desk audit promptly, ideally within five days. The compliance officer will initially review the submission to make certain that it is complete and acceptable.  If there are deficiencies the submission, the compliance officer will notify the contractor promptly and provide fifteen days to cure the deficiencies.  OFCCP will issue an immediate procedural Notice to Show cause if the deficiencies are not cured. The compliance officer will then review the submission and contact the contractor to request follow-up information or clarifying information.  Compliance officers may not request information beyond the categories listed in the CSAL (e.g., data to refine indicators, employment applications, manager interviews) until after the desk audit has been completed and the conclusion of the desk audit has been recorded in OFCCP’s case management system. Compliance officers should work to close reviews quickly if there are no indicators of discrimination or other evidence of violations.  The Directive states that ideally and in the majority of cases, OFCCP should complete a typical desk audit within 45 days of receiving complete and acceptable AAPs and supporting data. Prior to an on-site, the compliance officer may request supplemental data to refine indicators and prepare for a potential on-site visit. Critically, the Directive states that “[s]upplemental information requests must include the basis for the request, be reasonably tailored to the areas of concern, and allow for a reasonable time to respond.” Prior to an on-site, OFCCP should provide a “high-level summary” of any preliminary indicators of discrimination in the onsite confirmation letter. Although the Directive does not address the onsite review process, it states that the off-site analysis should begin “immediately” after the onsite is completed and that the OFCCP should maintain regular contact with the contractor (at least every 30 days) to keep it informed of the status of the evaluation. The Directive also does not address the process for reviewing the data and information collected through the desk and on-site review or for determining whether OFCCP should issue a Notice of Violation. However, it addresses new procedures for the conciliation process after the issuance of a Notice of Violation. The Directive states that OFCCP should take a collaborative process in conciliation, including (1) sharing information and essential source data in electronic format so that contractors can understand and replicate OFCCP’s methodology and findings; (2) share the factors used to calculate back pay; and (3) provide an overview or summary of the anecdotal evidence or non-statistical findings that provide support or context for OFCCP’s statistical analyses. The Directive notes that the Branch of Expert Services and/or the staff of the Office of Solicitor may become involved to facilitate the conciliation process.  It also states that OFCCP will work with the contractor to identify innovative remedies, such as apprenticeship programs and proactive corporate-wide solutions. Contractors and their counsel can draw significant guidance from the Transparency Directive.  It is clear that contractors must be prepared to produce immediately their basic AAPs upon the receipt of a CSAL.  To ensure that employees responsible for the preparation and implementation of AAPs are notified immediately of the receipt of CSALs, contractors should confirm that OFCCP has accurate contact information for the contractor and each of its establishments or functional units. Also, with these new deadlines, contractors must stay on top of their AAPs, ensuring that they are prepared on time and implemented effectively.  Contractors should also confirm that they have the applicant tracking (ATS) and human resources information systems (HRIS) and other databases available that will allow it to pull and analyze hiring, promotion, termination and compensation information that is accurate and includes the categories of information necessary to provide the data requested through CSALs. The Directive is designed to address contractors’ complaints that many audits taking too long and do not follow the steps required in the compliance manual.  Many compliance audits have become seemingly endless, with compliance officers repeatedly requesting follow-up information and data without undertaking an on-site review or notifying contractors of their findings at the end of it.  These audits – now referred to by OFCCP – as “aged audits” have become an area of concern for the senior leadership of OFCCP.  Although the Directive is designed to address these concerns, it will be important for contractors to hold Compliance Officers to these standards, requesting that they present the findings required by the Directive and that they not request information beyond the CSAL until they have been provided.  Similarly, if a contractor receives requests for information and data prior to or in connection with an on-site review, it should request the justification for OFCCP’s requests. Although it is the objective of most contractors to be cooperative during audits, they can certainly request that OFCCP comply with its own compliance review standards without being adversarial.

The application of the 80/20 Rule has been a hot topic in the restaurant industry the last several years because it is the foundation of an onslaught of collective and class action litigation brought by service workers claiming they were not paid minimum wage. As a brief summary, the 80/20 Rule limits the use of the lower tip credit wage rate ($2.13 per hour) when a tipped employee spends more than 20% of their working time on non-tipped work. In other words, employers can only apply a tip credit to time spent on non-tipped work if such duties did not exceed 20% of the employee’s time.  Take a look at our previous post regarding the 80/20 rule for more information. Last year, in Marsh v. J. Alexander’s LLC the U.S. Ninth Circuit Court of Appeals struck down the 80/20 Rule and created a split among the circuits as to its validity.  However, the Ninth Circuit reheard the Marsh v. J. Alexander’s LLC matter en banc and, reversed its prior ruling, determining (in line with other Circuits) that the 80/20 Rule was indeed valid. More recently, in November 2018, the U.S. Department of Labor (“DOL”) issued an Opinion Letter stating that it has officially done away with the 80/20 Rule for tipped workers and restored its old guidance. The Opinion Letter states: “We do not intend to place a limitation on the amount of duties related to a tip-producing occupation that may be performed, so long as they are performed contemporaneously with direct customer-service duties and all other requirements of the Act are met.” This result comes as welcome news for the restaurant industry, as restaurants no longer need to track a tipped employee’s every task and the amount of time spent on each task – a logistical nightmare. Additionally, this change may result in a reduction of minimum wage collective and class action claims brought by tipped employees and lift the administrative burden the 80/20 Rule placed on restaurant employers.

On September 14, 2018, a three-member majority of the National Labor Relations Board (“NLRB” or “Board”) comprised of Members William Emanuel, John Ring, and Marvin Kaplan published a proposed rule in the Federal Register that would restore the Board’s joint-employer standard as it existed prior to the 2015 Browning-Ferris decision. Pursuant to the proposed regulation: “An employer may be considered a joint employer of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment, such as hiring, firing, discipline, supervision and direction.  More specifically, to be deemed a joint employer under the proposed regulation, an employer must possess and actually exercise substantial direct and immediate control over the essential terms and conditions of employment of another employer’s employees in a manner that is not limited and routine.” The rule’s proponents contend the proposed rule would return the joint-employer analysis to the Board’s traditional jurisprudence, which, per the majority, was “significantly relaxed” by the Board’s decision in Browning-Ferris.  Specifically, the Browning-Ferris decision held that the power to exercise control over a workforce, rather than whether such power is actually exercised, was the appropriate lens for assessing joint employment.  The new proposed rule, in contrast, seeks to restore the traditional standard, which found joint-employment when the employer actually exercised direct and immediate control over the other employer’s employees. Employers may recall that this is not the first time that President Trump’s Board has sought to restore its’ traditional joint-employment analysis.  In December 2017, the Board overruled Browning-Ferris in a decision styled Hy-Brand Industrial.  However, Hy-Brand Industrial was vacated in February 2018 when the Board’s Designated Agency Ethics Official determined that Member Emanuel should not have participated in the decision. In a sharp dissent, Member Lauren McFerran took the Board’s majority to task, arguing: “[T]here is no good reason to revisit Browning-Ferris, much less to propose replacing its joint-employer standard with a test that fails the threshold of consistency with the common law and that defies the stated goal of the National Labor Relations Act: ‘encouraging the practice and procedure of collective bargaining.’” Interested parties now have 60 days to comment on the proposed rule. For employers that make use of another entity’s employees, or otherwise have close relationships – such as franchisors and franchisees or contractors and subcontractors -- this proposed rule comes as welcome news.  Should the Board adopt the proposed rule at the end of the rulemaking process, employers will be provided greater certainty when entering into relationship with other entities. That said, labor watchers expect the road to the final rule to be bumpy.  Unions and their allies have already signaled they will challenge the rule through the comment process and – most likely – in the courts.  We have been following the Board’s joint-employer jurisprudence throughout the Browning-Ferris saga and will continue to do so.  Stay tuned for further updates.

On December 7, 2018, the U.S. Eighth Circuit Court of Appeals held that an employee who was terminated for refusing to take a rubella vaccine was not discriminated or retaliated against, under the Americans with Disabilities Act, as amended (“ADA”).  See Hustvet v. Allina Health System, Case No. 17-2963. In this case, Janet Hustvet worked as an Independent Living Skills Specialist. In May 2013, Hustvet completed a health assessment, during which she stated she did not know whether she was immunized for rubella.  Subsequent testing confirmed she was not.  Her employer -- Allina Health Systems -- then told Hustvet she would need to take one dose of the Measles, Mumps, Rubella vaccine (“MMR vaccine”).  Hustvet stated to an Allina representative that she was concerned about the MMR vaccine because she had previously had a severe case of mumps and had “many allergies and chemical sensitivities.”  Later, Hustvet refused to take the MMR vaccine, and was terminated for failure to comply with Allina’s immunity requirements.  Hustvet then sued Allina, alleging discrimination, unlawful inquiry, and retaliation claims under the ADA and Minnesota state law.  The district court granted Allina’s motion for summary judgment, and Hustvet appealed. On appeal, the Eighth Circuit first addressed Hustvet’s unlawful inquiry claim; specifically, Hustvet alleged that Allina violated the ADA when it required her to complete a health screen as a condition of employment.  When affirming the district court’s grant of summary judgment, the court explained that the information requested and the medical exam, which tested for immunity to infectious diseases, were related to essential, job related abilities.  Indeed, Allina sought to ensure their patient-care providers would not pose a risk of spreading certain diseases – such as rubella – to its client base.  Thus, the inquiry was job-related and consistent with business necessity. The court then did away with Hustvet’s discrimination claim based upon failure to accommodate because Hustvet was not disabled and, thus, she could not state a prima facie case of disability discrimination. There was simply no record evidence to support the conclusion that Hustvet’s purported “chemical sensitivities” or allergies substantially limited any of Hustvet’s major life activities. She was never hospitalized due to an allergic or chemical reaction, never saw an allergy specialist, and was never prescribed an EpiPen.  Rather, Hustvet suffered from “garden-variety allergies,” which was not enough to conclude she was disabled. Finally, the court affirmed the district court’s grant of summary judgment regarding Hustvet’s retaliation claim. In pertinent part, the court reasoned that Hustvet could not show that Allina’s proffered reason for terminating her employment – her refusal to take an MMR vaccine – was a pretext for discrimination.  The record evidence demonstrated that Allina terminated Hustvet’s employment because her job required her to work with potentially vulnerable patient populations, and she refused to become immunized to rubella, an infectious disease. This decision comes as welcome news to employers that provide health care-related services, and confirms that health care providers may condition employment upon taking certain vaccinations, so long as the vaccination is job-related and consistent with business necessity.  Employers with questions regarding implementing or enforcing such policies would do well to consult with able counsel.

On November 30, 2018, the U.S. District Court for the Southern District of New York determined that a company’s decentralized pay and promotion structure made the matter unfit for class and collective certification under Title VII, the Equal Pay Act (“EPA”), and state law.  In Kassman v. KPMG, No. 11 Civ. 3742 (LGS), 2018 WL 6264835 (S.D.N.Y. Nov. 30, 2018), plaintiffs filed suit under federal and state law, alleging discrimination against thousands of female associates, senior associates, managers, senior managers/directors, and managing directors in their pay and promotions.  Plaintiffs asserted both disparate impact and disparate treatment theories. The court held that plaintiffs could not establish the commonality requirement for a disparate impact class.  First, the court noted that the proposed class consisted of at least 10,000 women in various offices across the company and in various positions.  Second, while the defendant had uniform and firm-wide pay and promotion procedures, those procedures merely set up a structure for how employees were evaluated, but did not control the manner in which individual decision makers exercised their discretion regarding pay and promotion. Third, the court observed that the employer’s evaluation metrics were vague and unweighted, and that its promotion criteria included amorphous considerations like professionalism, integrity, reputation, and potential.  Such criteria did not meaningfully constrain discretion.  Finally, the employer presented evidence that members of senior management did not review or second-guess individual employee performance, pay, or promotion decisions, and instead simply confirmed the decision as a matter of process and budget. The court also found that plaintiffs could not establish commonality for a disparate treatment class.  The court held that the relevant level of decision-making for the challenged practices was at the practice-area level.  Because plaintiffs had not shown that promotion policies and practices were uniform across KPMG, the court found that plaintiffs could not rely on nationwide statistics.  The court also rejected the plaintiffs’ argument that certification was warranted because the employer was aware of a pay and promotions gap, and its efforts had not completely eradicated the gap.  Finally, the court observed that plaintiffs’ attempts to use anecdotal evidence to support class certification highlighted individual, rather than common, questions. The court next rejected plaintiffs’ request for EPA final certification because members of the collective did not work at a single “establishment” and were not “similarly situated” to each other. The employer’s pay and promotions were not sufficiently centralized to permit a finding that the many offices and practice areas represented by the proposed collective qualified as a single “establishment” under the EPA.  Moreover, the number of opt-ins, positions, offices, and cost centers at issue, as well as the lack of a uniform causal mechanism for pay and promotion, gave rise to procedural difficulties that could not assure fair treatment of all opt-ins. Kassman highlights the difficulties that plaintiffs have in obtaining certification on nationwide collective and class actions, particularly following the Supreme Court’s holding in Wal-Mart v. Dukes.  We will continue to monitor this matter, so stay tuned.

In 2016, the Occupational Safety and Health Administration (“OSHA”) published a rule (the “2016 Rule”) – found in  29 C.F.R. § 1904.35(b)(1)(iv) – related to post-incident drug testing and workplace safety incentive programs that left many employers confused. Fortunately, on October 11, 2018, OSHA published a memorandum designed to clarify the 2016 Rule and how it may be enforced (the “2018 Memo”). OSHA’s 2018 Memo can be found here. Post-Incident Drug Testing The 2016 Rule prohibited employers from retaliating against employees for reporting work-related injuries or illnesses. Subsequently, OSHA interpreted the 2016 Rule to prohibit employers “from using drug testing (or the threat of drug testing) as a form of adverse action against employees who report injuries or illnesses,” thus limiting employers to drug testing when there was a “reasonable possibility” that drugs or alcohol contributed to the accident or injury. See Supplementary Information to 2016 Rule, which can be found here. The 2018 Memo clarifies that an employer-mandated post-incident drug test would only violate the law “if the employer took the action to penalize an employee for reporting a work-related injury or illness rather than for the legitimate purpose of promoting workplace safety and health.” In addition, most instances of workplace drug testing are permissible under the law, including random drug testing, drug testing unrelated to the reporting of a work-related injury or illness, and drug testing to evaluate the root cause of a workplace incident. Safety Incentive Programs On the topic of safety incentive programs, the 2016 Rule warned that such programs “might be well-intentioned efforts by employers to encourage their workers to use safe practices,” but “if the programs are not structured carefully, they have the potential to discourage reporting.” See Supplementary Information to 2016 Rule. The 2018 Memo explains that incentive programs that reward employees who report near-misses or hazards, or programs that reward employees with prizes or bonuses at the end of an injury-free month, are lawful so long as they are not implemented in a manner that discourages reporting. To assure proper reporting, OSHA recommends that employers take steps to “create a workplace culture that emphasizes safety” by, for example, implementing: Incentive programs that reward employees for identifying unsafe conditions in the workplace. Training programs reinforcing reporting rights and responsibilities and the non-retaliation policy. A mechanism for accurately evaluating employees’ willingness to report injuries and illnesses. OHSA’s clarifications in the 2018 Memo are helpful to employers as they work to establish and implement policies aimed at maintaining and encouraging a safe working environment. Employers with questions regarding the 2018 Memo would do well to consult with competent counsel.

Earlier this year, the U.S. Department of Labor (“DOL”) and the Internal Revenue Service (“IRS”) issued new guidance and rules pertaining to retirement plans.  Now is a good time for employers to audit their plans to ensure compliance with applicable laws and, if not, to take corrective action. On April 1, 2018, the DOL’s final regulations updating the Employee Retirement Income Security Act’s (“ERISA”) claim and appeal requirements for disability-related benefit determinations went into effect. Importantly, the new rules apply to any retirement plan – including a 401(k) plan – that makes a determination of disability.  Employers that sponsor a retirement plan should ensure that their plan documents have been updated by the end of this plan year (December 31, 2018 for calendar year plans) to reflect these new disability-related claims procedures. Additionally, the IRS, through the EP Team Audit (“EPTA”) Program, issued helpful guidance regarding the “Top Ten” issues found in EPTA Audits, which are: 1.       Termination of Partial Termination – Potential Vesting/Distribution Issues 2.       Acquisitions 3.       Deferral Percentage Tests 4.       Compensation 5.       Plan Document 6.       Vesting 7.       Distributions and Loans 8.       Assets 9.       Limits 10.   Miscellaneous This “Top Ten” list telegraphs to employers which issues the IRS would likely focus on during an EPTA audit.  Thus, employers would do well to conduct self-audits on their plans to determine whether they are in compliance and avoid potential penalties. The IRS also updated its Employee Plans Compliance Resolution System (“EPCRS”) effective January 1, 2019. Although there are no significant changes to the Self-Correction Program or the Audit Closing Agreement Program, the updated system will require, beginning April 1, 2019, that all Voluntary Correction Program (“VCP”) submissions and payments be made electronically (there will be a three month transition period from January 1, 2019 – March 31, 2019 where online submissions and payments will be optional, but not mandatory).  Employers should review their fiduciary insurance policies to ensure they include attorney and filing fees associated with any and all corrections, and should file a claim should errors requiring a correction filing be uncovered. Employers with questions regarding the above issues would do well to consult with competent counsel.

On November 15, 2018, the United States Fourth Circuit Court of Appeals affirmed the decision of the Middle District of North Carolina in the case of Netter v. Barnes, et al, upholding dismissal of Netter’s case because her removal of other employees’ personnel files from the workplace is not “protected activity” and is a legitimate non-discriminatory reason for her termination.[1] A longtime employee of the Sheriff’s Department, Catherine Netter believed she was being discriminated against on account of her race and religion and removed several coworkers’ personnel files without permission, presumably “fishing” to determine whether said employees were being treated more favorably than her. Then, Netter copied the files and shared them with the Equal Employment Opportunity Commission (“EEOC”) when attempting to support her charge of discrimination. Eventually, Netter sued her employer for discrimination when she was passed over for a promotion. Netter (through her attorney) subsequently produced the files to the Sheriff in discovery. When deposed, Netter conceded that she had obtained the files as described above. In response, the Sheriff’s Department terminated her employment, citing, in addition to violations of internal policy, Netter’s violation of N.C. Gen. Stat. § 153A–98, which imposes criminal penalties for reviewing or disseminating information in county personnel files without authorization. Netter amended her lawsuit to include a retaliation claim under Title VII’s “participation clause,” which protects “participat[ion] in any manner in an investigation, proceeding, or hearing…” 42 USC § 20000e-3(a). Netter argued that her theft of personnel files fell under the participation clause, and even conceded that her actions violated the law. The Sheriff argued that any disclosure of information in violation of an employer confidentiality policy would fall outside of the scope of the participation clause, even if the employee had permission to access the information and disclosed it only to the EEOC in connection with a Title VII claim. The Court took a middle path, holding that the participation clause “does not protect a violation of a valid state law that poses no conflict with Title VII.” The Court did leave some breadcrumbs regarding the types of laws that could conceivably conflict with Title VII. Specifically, the Court noted in dicta the importance of personnel files to show evidence of disparate treatment. One can imagine that courts might take a closer look at a state law that, for instance, placed limits on the ability of the EEOC (or a corresponding state agency) to seek the information contained in personnel files. In any case, employers should ensure that access to personnel files and other confidential information is strictly monitored. [1] http://hr.cch.com/ELD/NetterBarnes111518.pdf

On Tuesday November 6, 2018, the U.S. Supreme Court unanimously ruled that the Age Discrimination in Employment Act (“ADEA”) applies to state and local government employers with fewer than 20 employees.  The Supreme Court’s decision, in Mount Lemmon Fire District v. Guido, affirmed the U.S. Ninth Circuit Court of Appeal’s ruling and resolved a Circuit Court split regarding the ADEA’s coverage of public employers. Due to budgetary shortfalls, the Mount Lemmon Fire District, a political subdivision in Arizona, terminated its two oldest full-time firefighters, John Guido and Dennis Rankin, who sued alleging discrimination under the ADEA. Mount Lemmon sought dismissal of the case on the grounds that it was not an employer as defined and  covered by the ADEA. Upon enactment in 1967, the ADEA covered only private sector employers.  However, in 1974, Congress amended the ADEA to redefine an employer as “a person engaged in an industry affecting commerce who has twenty or more employees…[t]he term also means (1) any agent of such a person, and (2) a State or political subdivision of a State…”  (emphasis added). The statutory language proved pivotal in the case, as the Supreme Court held the phrase “also means” created an entirely new, separate category of employer covered under the ADEA. The Supreme Court reasoned that because Congress did not apply the numerosity requirement of private sector employers to the political subdivisions, small state and local government subdivisions need not have 20 or more employees to fall within the ADEA’s scope. While Mount Lemmon warned that this interpretation would too broadly extend the ADEA’s scope, potentially causing increased litigation and legal costs and threatening necessary public services, the Supreme Court ultimately disagreed. Justice Ruth Bader Ginsburg, who authored the opinion, acknowledged that this interpretation would give the ADEA “a broader reach than Title VII. But this disparity is a consequence of the different language Congress chose to employ.”  The Court was further unconcerned with the risk of emergency service shrinkages, noting that the Equal Employment Opportunity Commission has followed this same interpretation for 30 years without problematic public services cuts.  The Court concluded that the ADEA’s definition of employer left “scant room for doubt” that state and local governments are employers under the ADEA, regardless of their number of employees. With its broader reach, state and local employers should be mindful of the ADEA’s coverage and requirements. The Polsinelli Labor and Employment attorneys are here to address and assist with any ADEA questions or cases.

Recently, a hospital was sued for negligent hiring after one of its surgical technicians exchanged a vial of saline solution for a vial of painkiller before a surgery was set to commence.  The surgical technician was caught and promptly fired, and turned over to law enforcement authorities.  However, a subsequent investigation revealed that the surgical technician had a history of drug diversion at his former jobs that had gone undiscovered, despite the fact that the hospital hired a background check company to perform a pre-hire check.  What can companies do to minimize the risk of hiring unqualified workers?  Below, we outline the reasons employers should consider adopting a pre-employment background check process. There are a number of reasons for employers to develop an effective pre-employment background screening process.  The most basic reason is that it is just good business; reduced employee turnover from hiring the right person will likely save the employer money and time.  In the United States, the median length of time U.S. workers stayed with their employer was estimated to be 4.2 years, down from 4.7 years in 2014 and 4.3 years in 2015.  Robust hiring practices can help reverse this trend. The indirect costs to employers of replacing employees, such as 1) the loss of institutional knowledge that comes with a revolving work force; 2) increased training and ramp-up time; and 3) the damage caused to valuable customer relationships because of employee inexperience  can be even higher.  Higher quality candidates – procured through a robust screening process – can result in the delivery of higher quality products and service. Moreover, the failure to implement an effective system for pre-employment screening can lead to legal exposure.  What can employers do to minimize these costs and risks?  Key elements of a robust pre-employment background screening system often include: Verifying a candidate’s stated previous employment; Verifying a candidate’s stated education and credentials; Checking whether a candidate was arrested or convicted for a felony or misdemeanor; Verifying a candidate’s stated military records, if appropriate; Reviewing available credit reports. Also, consider whether to review a candidate’s social media profile. Employers with questions regarding implementing or conducting background screenings of potential new-hires would do well to consult with competent counsel.

So far in 2018, the U.S. Department of Labor (“DOL”) has issued more than 20 opinion letters navigating the murky waters of the Fair Labor Standards Act (“FLSA” or “Act”). In late-August, the DOL issued several new opinion letters to which employers can refer for guidance when confronted with FLSA questions.  Recently, we reviewed two such opinion letters. Here, we review another letter that employers may find helpful when navigating the FLSA. 3.   Applying the Motion Picture Theater Exemption to All Theater Attractions Under the FLSA, a commercially operated business primarily engaged in showing motion pictures qualifies for the motion picture exemption and need not comply with the Act’s minimum wage and overtime requirements. Drive-in movie theaters (remember those?) may fit within the exemption; theaters with live productions generally will not. Today’s large movie theater complexes offer diverse entertainment options, including “finer” food and dining (not simply the average popcorn, nachos and candy snack bars), as well as cocktails and arcades. The entire complex and its attractions may – or may not, in part – qualify for the motion picture exemption, depending on how closely interconnected each of these options are to each other. The resulting minimum wage and overtime requirement matrix could be cumbersome and prone to mistakes. The DOL recently noted a three-part test should help movie businesses to assess whether the motion picture exemption applies to its entire operations at a particular venue: Physical separation of the theater’s parts; Whether the different theater parts are operated as separate units, maintaining separate records and booking; and Whether the different theater parts intermix and exchange employees. The businesses subject to the opinion letter were incorporated as a single business unit, filed taxes and maintained business records jointly, ordered goods and paid invoices as a single business, and used the same bank accounts to pay business expenses. Additionally, the businesses provided services to the public under the same, single business name and considered/treated their employees as employees of the entire business unit. The DOL opined the motion picture exemption was a natural fit to the theater’s entire operations. As with any workplace policy or procedure, questions regarding wage-hour matters should be addressed proactively by employers to maintain compliance, identify potential areas of noncompliance and chart courses to achieve compliance. Employers should consult with in-house and outside employment counsel regarding such efforts and questions.

Recently, California Governor Jerry Brown signed a series of Bills that add additional protections to victims of sexual harassment and may make it more difficult for employers to defend those claims.  Specifically, on or before January 1, 2019, the following laws will take effect: SENATE BILL NO. 1300 Senate Bill 1300 provides the most numerous and far reaching changes to the harassment landscape in California.  It adds a number of new provisions to the government code which broaden the definition of harassment and may diminish the ability of an employer to defend itself in court.  Specifically, the Bill adds a new Section, 12923, to the Government Code which: Substantially broadens the definition of a hostile work environment to include any conduct that "sufficiently offends, humiliates, distresses, or intrudes upon its victim, so as to disrupt the victims emotional tranquility in the work place, affect the victims ability to perform the job as usual, or otherwise interfere with and undermine the victims personal sense of wellbeing." Indicates that a single incident of harassing conduct is sufficient to create a triable issue regarding the existence of a hostile work environment if the harassing conduct has unreasonably interfered with the plaintiff's work performance or created an intimidating, hostile, or offensive working environment. Rejects the "stray remark" doctrine and instructs that "the existence of a hostile work environment depends on the totality of the circumstances and a discriminatory remark, even if not made directly in the context of an employment decision or uttered by a non-decision maker, may be relevant, circumstantial evidence of discrimination.” Instructs that the legal standard, except in very limited circumstances, for sexual harassment should not vary by type of workplace. Instructs that harassment cases are rarely appropriate for disposition on summary judgment. In addition, Senate Bill 1300 also: Codifies case law that an employer may be responsible for the acts of non-employees with respect to harassment of employees, applicants, unpaid interns, or persons providing services pursuant to a contract in the workplace. Adds Section 12964.5 to the Government Code, which restricts the ability of an employer to require an employee to sign a release of a claim or right under certain circumstances.  Note a "release of claim or right" includes requiring an individual to execute a statement that he or she does not possess any claim or injury against the employer or other covered entity, and includes the release of a right to file and pursue a civil action or complaint. Prohibits an employer from requiring an employee to sign a non-disparagement agreement or other document that purports to deny the employee the right to disclose information about unlawful acts in the workplace, including, but not limited to, sexual harassment.   Any agreement or document in violation of this section is contrary to public policy and shall be unenforceable. Significantly, this section does not apply to a negotiated settlement agreement to resolve an underlying claim that has been filed by an employee in court, before an administrative agency, alternative dispute resolution forum, or through an employer's internal complaint process.  Critically, a settlement agreement will only be considered to have been “negotiated” if the employee received notice and an opportunity to retain counsel. CONFIDENTIALITY OF SETTLEMENT AGREEMENTS In addition to the restrictions imposed by new Government Code Section 12964.5, Senate Bill 820 adds Section 1001 to the Code of Civil Procedure and relates to the confidentiality of settlement agreements.  Specifically, this new section outlaws provisions in a settlement agreement that prevent the disclosure of factual information related to a claim filed in a civil or administrative action regarding sexual harassment or other forms of harassment.  However, the prohibition does not apply to the identity of the claimant, if they requested it to be confidential, nor does it prohibit the confidentiality of the amount paid in settlement of a claim.  That provision, however, must be read in light of the new federal tax provision that precludes the deductibility of payments in connection with the settlement of sexual harassment or sexual assault claims that are subject to a confidentiality provision. ASSEMBLY BILL NO. 3109 In keeping with the concerns underlining new Government Code 12964.5 and Code of Civil Procedure Section 1001, Section 1670.11 is added to the Civil Code and makes a provision in a contract or settlement agreement void and unenforceable if it waives a party's right to testify in an administrative, legislative, or judicial proceeding concerning alleged criminal conduct or sexual harassment. LESSONS TO BE LEARNED The California legislature has greatly expanded the protection of employees and other individuals in connection with sexual harassment.  As a result of these changes, it is even more imperative for employers to train their employees to recognize and report allegations of sexual harassment and to affirm that they have been trained on these issues and they are not aware of any such circumstances.  Additionally, employers need to be careful when requiring an employee to forego legal claims or to restrict their ability to disclose facts relating to sexual harassment by either preventing such disclosure in a settlement agreement or trying to prevent their testimony in an official proceeding.

In a 3-1 decision, the National Labor Relations Board (“NLRB” or “Board”) ruled that E.I. DuPont De Nemours and Company (“DuPont”) did not violate the National Labor Relations Act ( “Act”) by implementing unilateral changes to employee benefits without advance notice because the changes were consistent with annual past practice. (Decision can be found here.) For many years and across successive collective bargaining agreements, DuPont announced benefit plan changes in the fall and implemented them on January 1 without union objection. However, in 2004 and 2005, DuPont made unilateral changes following contract expiration and in response, the United Steelworkers local union filed unfair labor practice charges, alleging that DuPont unlawfully refused to bargain with the Union regarding the changes to the union members’ terms and conditions of employment. In 2010, the NLRB determined that DuPont’s unilateral changes violated Section 8(a)(5) of the Act because the reservation of rights provision waiving the union’s right to demand bargaining did not survive contract expiration. DuPont appealed the Board’s decision to the D.C. Circuit Court of Appeals. On appeal, the D.C. Circuit ruled that the NLRB departed without reasonable justification from its own precedent regarding past practice, and remanded the case to the NLRB for further proceedings. On remand in 2016, the NLRB affirmed its prior findings, which DuPont again appealed.  While the case was pending before the D.C. Circuit for a second time, the NLRB issued the Raytheon decision, which held that employers do not have to bargain over changes to employment terms so long as the changes are consistent with past practice.  Critically, the Raytheon decision expressly overruled the majority’s holding in DuPont 2016 and the precedent upon which it relied. The Board then returned to the instant matter.  Applying Raytheon, the majority, consisting of Chairman John Ring and Members Bill Emanuel and Marvin Kaplan, held that DuPont’s changes to the unit employees’ benefits “were consistent with a long-standing past practice of annual changes established over several years of the parties’ collective bargaining relationship.” Because the changes did not materially vary in kind or degree from prior changes, the employer was merely maintaining the status quo expressed in its past practice when the collective bargaining agreement was in effect. Accordingly, the employer did not violate the Act by implementing changes without providing the union with advance notice and the opportunity for bargaining. Member Lauren McFerran dissented only on procedural grounds, arguing that the NLRB lacked jurisdiction, as the case was still pending before the D.C. Circuit, and that the NLRB wrongfully deprived the parties of administrative due process by failing to provide notice. The Board’s decision affirms an employer’s right to make unilateral changes so long as those changes are similar in kind and degree to an established past practice consisting of comparable unilateral actions.  Employers considering making such unilateral changes would do well to consult with competent counsel beforehand to avoid an unfair labor practice charge.

In Exby-Stolley v. Board of County Commissioners, No. 16-1412, 2018 WL 4926197 (10th Cir. Oct. 11, 2018), the Tenth Circuit Court of Appeals held that for an individual to succeed on a failure to accommodate claim under the Americans with Disabilities Act (“ADA”), he or she must establish an adverse employment action, i.e., one that materially adversely affects the terms, conditions, or privileges of employment. See 42 U.S.C. §12112(a). When reaching its decision, the Tenth Circuit relied on two principles: first, read the statutory language and second, do not rely on dictum. Analyzing the ADA, the Court first reviewed the language in 42 U.S.C. § 12112(a), which states: No covered entity shall [1] discriminate against a qualified individual on the basis of disability [2] in regard to job application procedures, the hiring, advancement, or discharge of employees, employee compensation, job training, and other terms, conditions, and privileges of employment. The Court then noted that subsection (b) states the term “discriminate against a qualified individual on the basis of disability” includes “not making reasonable accommodations to the known physical or mental limitations of an otherwise qualified individual with a disability.” 42 U.S.C. § 12112(b)(5)(A). Based on the plain meaning of the statute, the Tenth Circuit concluded that failure to make a reasonable accommodation was a type of discrimination which, to be actionable, must be “in regard to” an adverse employment action. Rejecting the cases cited by the dissent, the majority opinion relied on another familiar principle: courts are not bound by dicta, which are “statements and comments in an opinion concerning some rule of law or legal proposition not necessarily involved nor essential to determination of the case at hand.” TAKEAWAYS To employers, the case is important in that, at least under federal law in the Tenth Circuit, for an employee to have an actionable failure-to-accommodate claim, he or she must prove the failure to accommodate resulted in an adverse employment action.

Employers may face risks of departing employees, particularly involuntarily terminated employees, taking the employer’s confidential information or trade secrets with them when they leave.  Putting aside  the employee’s motivation—a desire to compete, spite, or something else entirely—employers should consider protective measures to limit, if not completely cut off, an employee’s access to confidential information and trade secrets attendant to termination of employment. Here are four best practices to limiting an employee’s access to confidential information and trade secrets proximate to termination of employment: 1.  Cut off the employee’s access to Company computer systems during, but not before, the termination meeting.  Use the element of surprise to the Company’s defensive advantage.   An employee who notices that access to Company computer systems has been cut off may sense the impending termination and take efforts to obtain conceal, access, or destroy Company confidential information in paper form or on electronic media. 2.  Remind the employee of all post-employment confidentiality obligations and restrictive covenants during the termination meeting.  The termination meeting may be the last point of direct communication between a departing employee and the employer.  Whether or not the employee heeds the warnings given, the Company is in a better position to enforce its rights having given the departing employee notice of the employee’s obligations, and a paper copy of any applicable agreements. 3.  Gather all Company devices from the departing employee as soon as possible.  The longer the departing employee has access to Company devices, the more likely the devices (and any confidential or proprietary data thereon) will become lost or compromised.  The employee should be given a deadline by which devices at the employee’s home or elsewhere outside the workplace should be returned to the Company. 4.  Consider financial incentives for departing employee compliance.  Employers may condition severance pay, if offered to the departing employee, upon the return of all Company confidential information and devices.   Likewise, in some but not all states, employers may implement policies that condition payout of accrued and unused vacation upon prompt surrender of Company devices and compliance with post-employment confidentiality obligations.

In recent years, California courts have complicated the lives of employers that utilize commission and piece rate compensation systems (i.e., “activity-based compensation”).  Federal and state courts have repeatedly found activity-based compensation plans to be unlawful under California law, even when they result in per-pay-period compensation that exceeds the minimum wage.  Courts reasoned that these plans violate California law because they do not separately compensate employees for each hour worked, such as time spent performing non-commission or non-piece-rate earning tasks (e.g., waiting for work, cleaning, attending meetings, etc.).  See, e.g., Vaquero v. Stoneledge Furniture LLC, 9 Cal. App. 5th 98 (2017); Gonzalez v. Downtown LA Motors, LP, 215 Cal. App. 4th 36 (2013). However, the California Court of Appeal recently gave its stamp of approval to a variable hourly-based compensation system that could permit employers to closely approximate the wages paid using traditional commission/piece rate plans while complying with California law.  In Certified Tire and Serv. Ctrs. Wage and Hour Cases, 2018 WL 4815544 (Cal. Ct. App. Sep. 18, 2018) (“Certified”), the employer compensated automotive technicians as follows: [A] technician is paid an hourly wage for all work performed …, which … exceeds the legal minimum wage. … [T]he hourly rate paid to a technician during any given pay period may be higher than the guaranteed minimum hourly rate based on a formula that rewards the technician for work that is billed to the customer …. [E]ach billed dollar of labor charged to a customer as a result of the technician’s work during the pay period is referred to as the technician’s “production dollars.”  Certified Tire … multipl[ies] the technician’s production dollars by 95 percent, multiplying that amount by a fixed “tech rate” …, and then dividing by the total hours worked by the technician during the pay period.  By applying this formula, Certified Tire determines the technician's “base hourly rate” for the pay period.  If the base hourly rate exceeds the technician’s guaranteed minimum hourly rate, the technician is paid the base hourly rate for all time worked during the pay period.  If the guaranteed minimum hourly rate is higher than the base hourly rate, the technician is paid the guaranteed minimum hourly rate for all time worked during the pay period. Id. at *1.  Put simply, a technician’s hourly rate was the higher of a pre-set minimum, or a rate derived from the technician’s average hourly “production.”  The court provided this illustration of the plan’s operation: [A] technician with a “tech rate” of 30 percent who generated $5,000 of production dollars in an 80-hour pay period, would achieve a base hourly rate for that pay period of $17.81 (based on $5,000 multiplied by .95, multiplied by .30, divided by 80).  Assuming that base hourly rate is higher than the technician’s guaranteed minimum hourly rate, the technician would be paid $17.81 multiplied by 80 hours for the pay period, for a total payment of $1,424.80. Id. at *1 n.4. The plaintiffs alleged this compensation method violated California law because the employer required employees to perform work that could not generate production dollars (e.g., tire rotations, oil changes, cleaning, attending meetings, etc.) and thus “could not increase the base hourly wage[.]”  Id. at *2 (emphasis in original).  As such, time spent performing these non-productive activities was “all uncompensated[.]”  Id. at *3 (“[A]ccording to [plaintiffs], technicians earn ‘no wages’ when performing work that does not generate production dollars, and therefore ‘the [plan] violates the minimum wage requirements by failing to provide the required separate compensation’ for each hour worked.”).  To bolster this point, plaintiffs compared the compensation of two hypothetical technicians: [A]ssume one technician generates $2,000 of production dollars in a 30-hour pay period working solely on tasks that generate production dollars.  A second technician generates $2,000 of production dollars in a 40-hour pay period, devoting 10 hours of the 40 hours to tasks that do not generate production dollars.  Further assume both technicians have a “tech rate” of 30 percent.  The base hourly rate for the first technician is $19 per hour ($2000 x .95 x .30 ÷ 30 = $19).  The base hourly rate for the second technician is $14.25 per hour ($2000 x .95 x .30 ÷ 40 = $14.25).  For 30 hours of work the first technician gets paid $570 during the pay period ($19 x 30 = $570).  For 40 hours of work the second technician also gets paid $570 during the pay period ($14.25 x 40 = $570). Id. at *7.  According to plaintiffs, this example illustrates that “because both technicians are taking home the same amount in their paychecks (i.e., $570) even though the second technician worked 10 hours more than the first technician while involved in tasks that did not generate production dollars, the second technician is not compensated at all for the last 10 hours of the pay period.”  Id. at *8 (emphasis in original).  The court rejected the plaintiffs’ argument. First, the court noted that the technicians’ pay plan was an hourly-based compensation system, not an activity-based compensation system.  “Although the hourly rate differs from pay period to pay period because technicians have the opportunity to increase their guaranteed minimum hourly rate based on the generation of production dollars, the technicians are always paid on an hourly basis for all hours worked at a rate above minimum wage regardless of their productivity, and regardless of the type of activity in which they were engaged during those hours.”  Id. at *7. Second, the court found “no merit to plaintiffs’ contention that the second technician is receiving no wages … for the time spent on tasks that do not generate production dollars[.]”  Id. at *8.  Because the plaintiffs received an hourly wage for all hours worked – albeit a variable one – the court “reject[ed] the plaintiffs’ argument that [the employer] must make a separate additional payment to the technician” for unproductive time to comply with California law.  Id.  Accordingly, the court concluded that the variable hourly rate compensation was lawful. The court’s decision in Certified provides a roadmap for employers struggling to create compensation plans that incentivize production while complying with recent decisions invalidating traditional commission and piece rate plans.  Employers with questions regarding their compensation plans should consult with competent counsel.

In the wake of the #MeToo Movement, New York enacted legislation that is specifically targeted to sexual harassment in the workplace.  On October 1, 2018, New York released final guidance materials regarding the legislation, including a model policy and a list of Frequently Asked Questions, which can be located here. All New York employers must have updated anti-sexual harassment policies in place by October 9, 2018.  All employers must distribute to all New York employees a sexual harassment prevention policy and complaint form that employees can use to report sexual harassment, which New York has made available online here. For employers that opt to create their own policies, the policy must: Prohibit sexual harassment consistent with guidance issued by the Department of Labor in consultation with the Division of Human Rights; Provide examples of prohibited conduct that would constitute unlawful sexual harassment; Include information concerning the federal and state statutory provisions concerning sexual harassment, remedies available to victims of sexual harassment, and a statement that there may be applicable local laws; Include a complaint form; Include a procedure for the timely and confidential investigation of complaints that ensures due process for all parties; Inform employees of their rights and redress and all available forums for adjudicating sexual harassment complaints administratively and judicially Clearly state that sexual harassment is considered a form of employee misconduct and that sanctions will be enforced against individuals engaging in sexual harassment and against supervisor and managerial personnel who knowingly allow such behavior to continue; Clearly state that retaliation against individuals who complain of sexual harassment or who testify or assist in any investigation or proceeding involving sexual harassment is unlawful. Additionally, employers must provide this policy in writing or electronically to employees.  If the policy is made available on a work computer, employees must be able to print a copy for their own records.  New York further requires that the policy be provided to employees “in the language spoken by their employees.”  To assist employers, New York intends to publish the model materials in different languages; yet if the model materials are not available in an employee’s primary language, the employer may provide the employee with an English-language version.  Employers do not have to provide this policy to “independent contractors, vendors or consultants.” Furthermore, the complaint form does not need to be included in full in the employer’s policy, but the policy should be clear about where the form may be found, for example, on the company’s internal website. In addition to the above requirements, all New York employers must provide employees with annual, interactive sexual harassment prevention training.  The deadline for completing the training requirement has been extended to October 9, 2019. New York employers may wish to work with competent counsel to examine their anti-harassment policies to ensure compliance with the legislation.  New York employers should also make sure that they implement compliant annual preventative sexual harassment training by the October 9, 2019 deadline.  In addition, New York employers operating in New York City should familiarize themselves with the requirements imposed by the Stop Sexual Harassment in New York City Act, which will impose additional training requirements beginning April 1, 2019.

Throughout the month of September, 2018, the U.S. Department of Labor (“DOL”) held five listening sessions across the United States to receive feedback from the public on the minimum salary requirements for the white collar exemptions of the Fair Labor Standards Act (“FLSA”).  These sessions were held in Atlanta, Seattle, Kansas City, Denver, and Providence.  Another listening session is scheduled for October 17, 2018, in Washington, DC. As a reminder, in 2016, the DOL proposed an increase to the FLSA’s salary threshold for the white collar exemptions from $455 per week (i.e., $23,660 annually) to $913 per week (i.e., $47,476 annually). On November 22, 2016, a federal judge in Texas issued a nationwide injunction halting implementation of the DOL’s proposed rule. Polsinelli attorneys participated in the DOL’s listening sessions in multiple cities to ascertain the concerns raised by employers. Summary of employers’ comments The vast majority of the comments were from employers. In general, employers did not oppose an increase to the salary threshold, but advocated that the DOL adopt the 2004 methodology of calculating the minimum salary, which would put the salary threshold for purposes of the exemption at approximately $32,000/year. Employers large and small raised several concerns regarding the DOL implementing a threshold salary level that is too high. Indeed, employers argued that small business would have to hire and schedule more employees, engage expensive HR and payroll consultants, and contend with morale issues associated with people losing the salaried stature.  Employers further advocated against automatic increases in the salary threshold and argued the DOL should engage in a notice and comment period prior to implementing any additional increases.  Employers further stated that the jump in salary threshold as proposed in 2016 would have caused wage compression, budget issues, and impacted the regular salary/raise structures employers already had in place. Employer representatives also advocated for the DOL to make the duties test for the administrative exemption clearer to avoid misclassification and avoid future litigation. Summary of comments from other institutions Additionally, several speakers pointed out that the current workforce desired and enjoyed the flexibility that comes with being an exempt employee, and that raising the salary threshold too high could disqualify individuals and restrict this freedom. Moreover, several financial institutions advocated for a larger percentage of the threshold salary to be satisfied through incentive and bonus payments to employees. Publicly funded education institutions advocated for the salary threshold to be tied to local conditions as they rely on public funds and budgets. They also raised concerns that the salary threshold did not include “in kind” compensation. There was also a concern that any increase to the salary threshold needed to be phased in over time so educational institutions could comply with the federal grants which had been granted under prior salary requirements. The DOL did not make any responsive comments or engage with speakers during the listening sessions. Only time will tell if employers’ concerns were heard and will be considered by the DOL when formulating the new salary threshold for the FLSA’s white collar exemptions.  Stay tuned to Polsinelli at Work for further updates.

Notwithstanding two previous California Supreme Court decisions which essentially held that “[u]nder the common law, corporate agents acting within the scope of their agency are not personally liable for the corporate employer’s failure to pay its employees’ wages,”  Reynolds v. Bement (2005) 36 Cal.4th 1075, 1087, and Martinez v. Combs (2010) 49 Cal.4th 35, 66 (limiting liability for wage claims to the actual employer and not its agents), the California Court of Appeal just held that  individual employees can be liable for civil penalties and attorneys’ fees for a company’s failure to pay overtime and/or minimum wages. In Atempa v. Pedrazzani (September 28, 2018, D069001) ___ Cal.App.4th ___ [2018 WL 4657860], the Court of Appeal, Fourth Appellate District, distinguished both Reynolds and Martinez and held that individuals can be liable for civil penalties under California Labor Code section 558, subdivision (a) (relating to overtime) and Labor Code section 1197.1, subdivision (a) (relating to minimum wage) through the Private Attorneys General Act (“PAGA”) (Cal. Lab. Code, § 2699). The Court held that the plain meaning of Labor Code sections 558(a) and 1197.1(a) imposed liability for civil penalties on an “other person” acting on behalf of an employer.  Having established that an individual under the circumstances described in the case could be individually liable for civil penalties, as contrasted to the underlying wages, the Court relied on PAGA to allow a private attorney to collect those penalties (75% to the state and 25% to the aggrieved employees) and to collect attorneys’ fees of $315,014 pursuant to PAGA (Lab. Code, § 2699, subd. (g)(1)). CORPORATE EMPLOYEES NEED TO BE MINDFUL OF INDIVIDUAL LIABILITY FOR CIVIL PENALTIES ARISING FROM VIOLATIONS OF CALIFORNIA’S WAGE AND HOUR LAWS Notwithstanding the California Supreme Court’s determination that individuals, absent alter ego liability, are not liable for wages owed to a company’s employees, the Pedrazzani case establishes that corporate individuals can be held personally liable for civil penalties underlying the statutes requiring that employees be paid overtime and a minimum wage.Additionally, they can be held personally liable for attorneys’ fees resulting from an employee’s successful pursuit of those civil penalties under PAGA. It is unclear whether those payments ultimately will be paid by the company, if it hasn’t gone bankrupt, pursuant to California Labor Code section 2802.

In spite of all the controversy swirling around Judge Brett Kavanaugh’s nomination to take Justice Kennedy's seat, it’s business as usual at the United States Supreme Court as the Justices kicked off a new term on October 1.  Does the ADEA’s 20 employee threshold apply to public employers? The Justices heard argument their first day back in Mount Lemmon Fire District v. Guido, U.S., No. 17-587. The Court will determine whether the Age Discrimination in Employment Act’s (“ADEA”) 20 employee threshold applies to public employers in the same way it does private employers.  In that case, laid-off firefighters brought an ADEA claim against the District, which argued it was not subject to ADEA coverage because it had fewer than 20 employees. The U.S. Ninth Circuit Court of Appeals held otherwise, finding the ADEA protects all public employees regardless of employer size. Court to consider scope of FAA and issues of arbitrability Arbitration agreements make a repeat appearance on the Court’s docket this term. In Lamps Plus Inc. v. Varela, U.S., No. 17-988, the Court will review whether an arbitration agreement stating that "arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings" effectively waived an employee's right to bring a class-action claim. The Ninth Circuit held the arbitration agreement was valid, but further held that language in the agreement should be construed against the drafter based on California law such that the employee could bring class action claims in arbitration. Lamps Plus appealed the Ninth Circuit’s decision, arguing that the agreement’s failure to mention class arbitration should be interpreted under the Federal Arbitration Act (FAA) and the Court’s precedent to require arbitration on an individual basis only. In New Prime Inc. v. Oliveira, U.S., No. 17-340, the Court will assess whether arbitration agreements may be enforced against long-haul truck drivers classified as independent contractors based on an exception to the FAA for "contracts of employment" with workers who engage in interstate commerce, such as long-haul truck drivers. The trucking company asserts that it may enforce the agreements because the drivers are not employees. Further, while some arbitration agreements delegate authority to decide such threshold questions, the Court will consider whether a court may keep and decide issues of arbitrability if they are “clear,” in an effort to preserve party resources. Finally, in Henry Schein Inc. v. Archer and White Sales Inc., U.S. No. 17-1272, the Court will determine whether the FAA permits a court to decline to enforce an agreement delegating questions of arbitrability to an arbitrator if the claim that the case should be arbitrated is "wholly groundless." If there is one thing employers may already take away from the Court’s new term, it is the repeat lesson that arbitration agreements must be drafted carefully and clearly. Indeed, all arbitration agreements should be thoroughly reviewed by legal counsel. In addition, employers may also consider asking a handful of employees to review draft agreements in advance of dissemination to help ensure their employees will understand the language and process set forth in the agreement.Employers with questions regarding the breadth, scope, or enforceability of their arbitration agreements would do well to consult competent counsel.

So far in 2018, the U.S. Department of Labor (“DOL”) has issued more than 20 opinion letters navigating the murky waters of the Fair Labor Standards Act (“FLSA”). In late-August, the DOL issued several new opinion letters to which employers can refer for guidance when confronted with FLSA questions.  Herein, we address two important opinion letters.  Later this week, we will address two more. 1. FLSA Retail and Service Establishment Exemption Can Include The Sale of Tech Goods and Services to Commercial Entities The line dividing qualifying (for example, grocery stores, hardware stores, restaurants, hotels, etc.) and non-qualifying “retail or service establishments” can be difficult to divine. For employers (1) selling mostly retail goods and services (in other words, retail, not wholesale, goods and services) and (2) employing individuals who primarily receive commissions – the DOL has addressed an issue of particular interest. The employer requesting DOL’s guidance sold a technology platform to merchants that allowed those merchants to process their customers’ credit card payments via a mobile device, online or in-person. The DOL noted -- even though the employer’s primary customers were, themselves, commercial entities (and not the general public) – the employer still qualified for the FLSA retail or service establishment exemption.  The opinion letter further provides that the employer’s goods and services were not being resold to any other entities and, thus, fully met the exemption. Wage and hour law is usually slower on the uptake regarding changing technologies. This DOL opinion letter is one means by which tech companies can seek guidance with respect to compliance with the FLSA. 2. Motivation is the Key to Any Volunteer Generally, an individual’s time spent on charitable or public endeavors outside of his or her normal working hours is not compensable under the FLSA (though volunteers and interns with for-profit entities are analyzed differently). Here, a nonprofit organization sought DOL guidance regarding whether individuals who volunteered to grade a professional examination should be paid for their grading time. The DOL noted volunteers must freely offer their services (instead of being coerced or pressured into doing so) for their time engaged in their “volunteer” extracurricular public or charitable activities to be non-compensable under the FLSA.  In this situation, the subject individuals all sought to give back to their profession and held highly compensated positions outside of their roles as graders. The DOL opined the nonprofit entity was not required to pay these graders for their time, but could pay for the individuals’ incidental travel, lodging, meals and other expenses (without negating their FLSA volunteer status). Nonprofit organizations should ask volunteers several questions to determine, properly, whether such an individual truly qualifies as a “volunteer” whose time is non-compensable under the FLSA, including: Why are you volunteering? Are you employed elsewhere? Is your employer asking you to volunteer here? Has someone from our organization asked you to volunteer here? Is anyone asking you to volunteer here? Are you also seeking employment through our organization? Are you leveraging this volunteering opportunity as a means to work for our organization? Do you understand you will not be compensated for your time? Do you understand we will not consider you for employment because of this volunteering opportunity? As a better, or even best practice, any nonprofit entity utilizing non-paid volunteers should memorialize in writing answers to these questions and require the volunteer to sign the written understanding.

Employers subject to collective bargaining relationships often complain about the time they spend responding to objectively meritless grievances. From showing, for example, that it had just cause to terminate an intoxicated employee or justifying why it did not assign overtime to an employee who consistently refuses to work more than 40 hours a week, Employers may be compelled to expend resources responding to grievances that are filed without an appropriate investigation. One of the justifications proffered by Unions for filing and litigating such grievances is that they have a “duty of fair representation” under the National Labor Relations Act (the “Act”) to their members, violation of which could lead to an unfair labor practice charge (“ULP”).  Although true, this “bar” has been set artificially low, and so long as Unions do not act arbitrarily, discriminatorily, or in bad faith when failing to process grievances, they will not run afoul of the Act.  Longstanding National Labor Relations Board (“NLRB”) precedent has held that “mere negligence” when mishandling grievances is not a violation of the Act. Recently, Peter Robb, the General Counsel of the NLRB, issued a Memorandum that imposes a higher standard on Unions regarding the handling of grievances.  Doing away with the “mere negligence” standard, the General Counsel asked Regional Directors to more closely scrutinize decisions made by the Union not to pursue grievances on behalf of their members.  Going forward, the NLRB will issue complaints against Unions that claim that they, for example, “lost track, misplaced, or otherwise forgotten about a grievance.”  Likewise, where a Union fails to respond to a member’s request for a status of a grievance, the absence of a “reasonable excuse or meaningful explanation” will not pass muster. Facially, General Counsel Robb’s Memorandum appears to be another favorable outcome for Employers under the NLRB’s new Republican controlled majority. However, the increased scrutiny regarding the processing of grievances may actually increase the amount of grievances filed.  Instead of vetting whether a grievance has merit prior to its filing, Unions simply may file the grievance to satisfy their heightened “duty of fair representation” obligations.  Employers may also expect an increase in the number of information requests where Unions, as part of their grievance investigation, will ask for documents and other records earlier in the grievance process.  Objectively meritless grievances may be pursued to arbitration, especially in the case of vocal and antagonistic Union members, as Unions may prefer to lose at arbitration than justify its reasons not to pursue arbitration before the NLRB. Consequently, Employers are encouraged to maintain complete and accurate records of their employees’ work performances, since grievances regarding employee discipline likely will rise. Employers also should strictly enforce contractual time limitations throughout the grievance and arbitration process, since a Union’s failure to timely prosecute alleged violations of the collective bargaining agreement now may draw a ULP.

Employers may face risks of departing employees, particularly involuntarily terminated employees, taking the employer’s confidential information or trade secrets with them when they leave.  Putting aside  the employee’s motivation—a desire to compete, spite, or something else entirely—employers should consider protective measures to limit, if not completely cut off, an employee’s access to confidential information and trade secrets attendant to termination of employment. Here are four best practices to limiting an employee’s access to confidential information and trade secrets proximate to termination of employment: 1.  Cut off the employee’s access to Company computer systems during, but not before, the termination meeting.  Use the element of surprise to the Company’s defensive advantage.   An employee who notices that access to Company computer systems has been cut off may sense the impending termination and take efforts to obtain conceal, access, or destroy Company confidential information in paper form or on electronic media. 2.  Remind the employee of all post-employment confidentiality obligations and restrictive covenants during the termination meeting.  The termination meeting may be the last point of direct communication between a departing employee and the employer.  Whether or not the employee heeds the warnings given, the Company is in a better position to enforce its rights having given the departing employee notice of the employee’s obligations, and a paper copy of any applicable agreements. 3.  Gather all Company devices from the departing employee as soon as possible.  The longer the departing employee has access to Company devices, the more likely the devices (and any confidential or proprietary data thereon) will become lost or compromised.  The employee should be given a deadline by which devices at the employee’s home or elsewhere outside the workplace should be returned to the Company. 4.  Consider financial incentives for departing employee compliance.  Employers may condition severance pay, if offered to the departing employee, upon the return of all Company confidential information and devices.   Likewise, in some but not all states, employers may implement policies that condition payout of accrued and unused vacation upon prompt surrender of Company devices and compliance with post-employment confidentiality obligations.

On September 14, 2018, a three-member majority of the National Labor Relations Board (“NLRB” or “Board”) comprised of Members William Emanuel, John Ring, and Marvin Kaplan published a proposed rule in the Federal Register that would restore the Board’s joint-employer standard as it existed prior to the 2015 Browning-Ferris decision. Pursuant to the proposed regulation: “An employer may be considered a joint employer of a separate employer’s employees only if the two employers share or codetermine the employees’ essential terms and conditions of employment, such as hiring, firing, discipline, supervision and direction.  More specifically, to be deemed a joint employer under the proposed regulation, an employer must possess and actually exercise substantial direct and immediate control over the essential terms and conditions of employment of another employer’s employees in a manner that is not limited and routine.” The rule’s proponents contend the proposed rule would return the joint-employer analysis to the Board’s traditional jurisprudence, which, per the majority, was “significantly relaxed” by the Board’s decision in Browning-Ferris.  Specifically, the Browning-Ferris decision held that the power to exercise control over a workforce, rather than whether such power is actually exercised, was the appropriate lens for assessing joint employment.  The new proposed rule, in contrast, seeks to restore the traditional standard, which found joint-employment when the employer actually exercised direct and immediate control over the other employer’s employees. Employers may recall that this is not the first time that President Trump’s Board has sought to restore its’ traditional joint-employment analysis.  In December 2017, the Board overruled Browning-Ferris in a decision styled Hy-Brand Industrial.  However, Hy-Brand Industrial was vacated in February 2018 when the Board’s Designated Agency Ethics Official determined that Member Emanuel should not have participated in the decision. In a sharp dissent, Member Lauren McFerran took the Board’s majority to task, arguing: “[T]here is no good reason to revisit Browning-Ferris, much less to propose replacing its joint-employer standard with a test that fails the threshold of consistency with the common law and that defies the stated goal of the National Labor Relations Act: ‘encouraging the practice and procedure of collective bargaining.’” Interested parties now have 60 days to comment on the proposed rule. For employers that make use of another entity’s employees, or otherwise have close relationships – such as franchisors and franchisees or contractors and subcontractors -- this proposed rule comes as welcome news.  Should the Board adopt the proposed rule at the end of the rulemaking process, employers will be provided greater certainty when entering into relationship with other entities. That said, labor watchers expect the road to the final rule to be bumpy.  Unions and their allies have already signaled they will challenge the rule through the comment process and – most likely – in the courts.  We have been following the Board’s joint-employer jurisprudence throughout the Browning-Ferris saga and will continue to do so.  Stay tuned for further updates.